Whether you’re thinking of expanding organically or through the acquisition of another trucking business for sale, the biggest hurdle you’ll face may be finding funding. By the time small transportation business owners pay drivers, buy fuel, and cover repair costs, there may be little cash left over to work with.
But while traditional financing is harder to come by these days, it’s still possible for growing companies to access capital without resorting to personal credit or loans from family and friends. With the right resources, healthy businesses of all sizes have the ability to finance growth through acquisitions or mergers in the trucking industry.
1. Do your homework
A growing business isn’t a guarantee of growing profits. Before seeking a loan, it’s vital that business owners thoroughly research the feasibility of expansion plans. How many employees will need to be hired? What new capital will be needed? If you’re planning on moving into a new territory, what competition will you face? There must be enough cash flow on hand to cover growth-related expenses while also paying back lenders and investors.
2. Get a current business valuation
A current trucking business valuation serves as proof of your success in the industry and of the viability of your expansion plans. Unlike valuation methods that simply add up the numbers on financial documents, a valuation by an industry professional takes into account additional factors – from intangible assets to details unique to the trucking industry – for the most accurate portrait of your growth potential. Even companies that don’t show significant profits may be able to finance an expansion by demonstrating a healthy trucking cash flow and smart growth strategy.
3. Don’t rule out traditional financing
It’s often simpler to secure bank financing with an existing business since commercial lenders consider established owners less risky than unproven entrepreneurs. Even if a buyer has little experience in the trucking industry, the company being purchased likely comes with experienced employees, established customers, and an owner with insight and connections. Applying for Small Business Administration loans and working with lenders who have trucking industry experience may improve odds even further.
4. Make sure your house in order
Even though lenders may be more willing to work with an experienced borrower, they won’t make it easy. Most traditional financing sources – even SBA-backed business acquisition loans –will require the borrower to fund at least part of the purchase. For this reason, it’s essential to ensure personal and business finances are in order before applying for funding to cover trucking acquisitions or expansions.
5. Consider seller financing
Often times, there’s a substantial gap between available financing and the total purchase price of a trucking business for sale. More and more, sellers are offering financing to close the gap. Owner financing can be helpful for both seller and buyer. For the seller, carrying a note demonstrates confidence in a business and improves the odds of a sale. For a buyer, seller financing comes with lower rates and longer terms. Additionally, it often increases appeal to lenders by reducing the overall loan amount and practically guaranteeing seller involvement, which tends to contribute to a smoother and more successful transition.
When you’re ready to finance the purchase of a trucking company for sale, a trucking business broker can leverage extensive industry experience to help you achieve the best terms and deal.