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Business Loans for Transportation Companies

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Business Loans for Transportation Companies

Are you in the transportation business? Are you looking to expand and grow your company? Or maybe you’re in need of some extra money to cover an unexpected expense. Whatever it is you need financing for, finding the right business loan can sometimes seem like an endless task, but it doesn’t need to. 

Types of Transportation Businesses You Can Finance

A business loan can help you start any transportation business, including:

  • Trucking/owner-operator
  • Limousine/limo services
  • Taxi services
  • Car Rental services
  • Senior transportation services 
  • Bike rentals services
  • Moving van rental or moving company

How Can a Business Loan Help Your Transportation Business?

No matter what type of transportation you supply, the costs of running any business, let alone a vehicle-based one, can be extremely high. All cars, vans and shuttles, particularly luxury models, require plenty of maintenance, repairs, fuel, and storage. As the owner of the company, you’ll likely also have to update your inventory on a regular basis. So, for all vehicle and business-related expenses, getting the right amount of financing should be one of your top priorities. 

Insurance, Licenses, and Permits

In order to legally run a transportation business, you’ll need to register your business and establish a 1-800/vanity number. You’ll also need to purchase the necessary, province-specific insurance policies such as comprehensive automobile insurance, commercial auto insurance business liability insurance, blanket fleet coverage, and more. 

Vehicle Repair and Maintenance Costs

Whether you own a fleet of trucks, cars, limos or taxis, you’ll need to regularly maintain them and cover any costs due to vehicle mechanical failures. This includes vehicle diagnostics engine repairs, brake repairs, tire changes, oil changes, and other body or electrical maintenance or repairs

Payroll Expenses 

Running a transportation company requires qualified drivers and chauffeurs with specialty licenses, in-house mechanics for repairs and maintenance, managers to handle administrative work, marketing experts to build awareness of your brand, logistics coordinators to plan and track shipments and more depending on the size, type, and complexity of your transportation business.

Learn how to set up payroll for your transportation company.

Equipment Costs

One of the biggest costs of owning a transportation company is vehicles. Whether you decide to buy or lease, the cost of obtaining the vehicle (regular/stretched limousines, town cars, shuttle buses, oversized vans, etc) will be hefty.  Moreover, other equipment such as GPS and speed limiters will also require a good amount of capital. 

Rent/Property Costs

If you plan on owning a fleet of trucks, taxis, limos, you’ll need sufficient area to park and store your vehicles. Leasing or building a sizable storage lot, warehouse or garage with a proper security fence/wall and rolling gate will be costly. You can also build or renovate your reception area to enhance your customer experience. 

Inventory and Supply Expenses

In order to regularly maintain your vehicles, you’ll need to have access to basic fluids such as wiper, brake, transmission, power steering, and more. As a transportation service, it’s important to also supply your vehicles with all roadside emergency supplies including road flares, first-aid kits, and more.

Learn how to manage your small business inventory.

Best Business Loan Provider for Transportation Companies 

What Do You Need to Qualify for a Business Loan for Your Transportation Company?

The requirements to qualify for a business loan will vary depending on the lender you apply with.  However, there are some common aspects you’ll be evaluated on, no matter who you choose.   

  • Time in Business – Lenders usually require businesses to be at least 6 months to 2 years old because young businesses typically have less financial information available. This makes it difficult for lenders to determine the stability of the business. 
  • Personal and Business Credit Score – In general, lenders will evaluate your business credit score to determine your creditworthiness. However, if you don’t have a business credit score yet, or you plan to provide a personal guarantee, lenders will shift their focus to your personal credit score.
  • Business Revenue – Like income, your revenue is a good measure of your ability to repay debt. The higher and more consistent your monthly revenue is, the more confident your lender will be. 
  • Cash Flow – Good cash flow is another indicator that your business will be able to pay off its debt. While negative cash flow indicates you spend more than you earn, positive cash flow means you have sufficient cash available to service debt. 
  • Assets – If you’re providing collateral to secure the business loan, your lender will evaluate the value of your assets. Your business assets include property, vehicles, equipment, accounts receivable and more.  

Documents Required

Business Loan Checklist

Alternative Ways You Can Finance Your Transportation Business

There are many ways you can finance your transportation business in Canada. Depending on what you’re trying to finance, each financing option comes with its own benefits and drawbacks.

Merchant Cash Advance  

A merchant cash advance is an expensive but fast way to obtain a lump sum of cash. Unlike a business loan, there are no set terms, payments are made as a percentage of your card sales. This form of credit is great for emergencies such as vehicle repairs or replacements. It also is a good alternative to a business loan when you need to boost cash flow quickly. 

Invoice Factoring

As a transportation business, it may be a while before your client pays you, especially in commercial trucking. Clients are often slow to pay after receiving their shipments, which can make it difficult to pay your current outstanding bills. Instead of waiting for them, you can receive the cash now through invoice financing. Invoice financing involves selling your accounts receivables at a discount to a lender. In return, you’ll receive a lump sum of cash that you can use to pay bills or any other expense.

Equipment Financing 

Equipment loans work just like a business loan, except the equipment you purchase is used as collateral to secure the loan. It’s also important to note, that lenders typically only finance up to  80% of the equipment price, meaning you’ll have to put down 20% out of your own pocket. This makes equipment financing easier to qualify for even if you have bad credit. Whether you need to finance a truck or a fleet of cars or limos, an equipment loan can help you make it a reality. 

Check out how equipment financing can help you finance your truck.

Business Line of Credit 

If your transportation business is experiencing a shortage of cash flow due to a seasonal slowdown in business activity a business line of credit can bridge the gap. With it, you’ll have access to a certain amount of money that you can withdraw from whenever you need it. Interest is only paid on the amount used and you regain access to the funds as you pay it back. This form of credit is a great alternative to business loans for smaller business expenses. 

Government Financing 

The Government of Canada offers a number of financing programs and grants to help businesses grow. One of the most popular programs for small businesses is the Canadian Small Business Financing Program (CSBFP). The CSBFP is a government-backed loan that is issued by most major banks, credit unions, and financial institutions. You can borrow up to $1 million for your business, but only $350,000 for equipment and leasehold improvements. 

Frequently Asked Questions

Do you need to provide collateral to get a business loan?  

No, you are not obligated to provide collateral to get a business loan. However, some lenders may require you to provide some collateral if your finances or credit score do not meet their requirements. By providing some form of collateral (ex: equipment, vehicle, accounts receivable), you’ll reduce your risk as a borrower, which in turn, will lead to better rates and a higher chance of approval. 

How can I increase my chances of securing a business loan for my transportation company? 

Generally, lenders will consider your credit score, revenue, cash-flow, assets and time in business to determine your eligibility. As such, improving any one of these factors will increase your chances of securing a business loan. You can also increase your odds of approval by providing a personal guarantee, a cosigner or by securing the loan with an asset. 

Do I need a good credit score to finance my transportation business? 

Depending on the lender you apply with, you may need a good credit score to qualify for business financing. For example, while banks require businesses to have a good credit score, alternative lenders are willing to work with those who don’t. Alternative lenders will base your approval on other aspects of your business such as your monthly sales, cash flow, time in business, and more. 

Apply For a Business Loan Today

When you’re trying to focus on the happiness of your clients and the condition of your vehicles, chances are you won’t have time for much else. With Loans Canada, applications are easily completed and processed quickly from any computer, laptop, or wireless device. We can match you with the right lender to help you grow your business.

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