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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
The Biz Question
My husband and I started our trucking company 2 years ago. Things were going great until the truck we bought had 3 major breakdowns in a matter of a couple months. When we first encountered the problem, I tried to contact our bank about the difficulty. I was told that there was nothing they could do to help. So we were struggling to make all our payments, and although we have no problems making our normal monthly bills with some extra, we find ourselves trying to pay double to catch up. We would like to get a newer truck with a warranty so that we wouldn't have that problem again, but nobody will help us. One more thing, we've had some credit problems in the past.
Any suggestions??
Answer from our Guest Expert Lillyvette Montalvo
Hi, There!
Thanks for taking the time to ask your question! I've scoured my cupboard of problem-solving ingredients, and I'm ready to cook up some funding ideas for you. So grab your eating utensils and get ready to dig in!
A Secret Ingredient? Try a Dash of Leasing
From the sounds of it here, I'm assuming you've been operating your trucking business with just that one truck. While this is certainly a sound way to start out a potentially successful business, you can also find yourself in a bit of a jam without a back-up vehicle. The good news is you've been in the business for two years. This means you can possibly qualify for a lease of a new or slightly used truck -- with all of the appropriate warranties!
If your personal credit is okay, you can still indulge in this widely used and tax-savvy financial tool. Your credit doesn't have to be the cream of the crop because several leasing companies provide leases to small businesses with less-than-perfect credit. Although, your payments will probably be higher because of the higher interest rates that get attached. This can be resolved through time, however, so it isn't written in stone. The best thing about leasing is you don't have to sink all of your working capital into purchasing a new truck. Instead, you can lease it, with an option to buy. All the while, you're making fairly easy payments that allow you to put your working capital to good use in other areas of your business. (My website features a section on the advantages of leasing vs. purchasing.)
A Main Ingredient to Sample: The SBA's Assistance
You mentioned your bank wouldn't assist you with your immediate financial needs. Okay, Plan B. Have you tried contacting the U.S. Small Business Administration (SBA)? Although the SBA doesn't loan you the money directly, they work with many banks -- maybe even yours -- by guaranteeing the loan to the bank. Banks like this much better because they then feel their risk percentage lowers substantially. Contact your local SBA office to see if you qualify for their assistance. Get the necessary paperwork and go for it. This type of business loan could be just what you ordered up! More cash so you can update your trucking business! But don't hang onto this "crutch" for a long length of time; it could end up hindering you in the long haul.
A "Factoring" Ingredient
If you can't get a loan from the bank with an SBA guarantee -- or you can get a loan and you're not required to pledge your receivables as collateral -- consider selling your receivables to a funding source. This alternative method of financing is known as "factoring." Factoring allows you to have a consistent cash flow in your business without creating additional debt. It can only be used if you have a business-to-business or business-to-government format in your operations. For example, if you make a delivery for the local manufacturer to a warehouse in a nearby town -- the person who has to pay you is the manufacturing company. That is considered a business-to-business format. The reason this format has to exist is simple; this factoring depends mostly on the credit worthiness of your customers -- not yours! Which, in your case, would be a welcome option.
You can learn more about factoring and how it can assist your business by going to:
- Idea Cafe's Financing Your Biz section of Factoring -- where Idea Cafe features answers to several of the most commonly asked questions about factoring.
- Business Start-ups Magazine -- Look for their November 1998 article,"How to Factor."
Keep on Truckin'!! (I couldn't resist!)
Lillyvette Montalvo
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