FAQ Categories

Why is Trucking Considered a High Risk Industry by Lenders?

Trucking is often considered a high-risk industry by lenders and financial institutions for several reasons, primarily related to the inherent challenges and variables associated with the business.

This doesn’t mean that truckers can’t get approved for loans and financing, even the exact same loans and financing that other industries have an easier time securing. Think of it more like ‘handicap’ than a risk.

In this sense, an application summited for lending on behalf of a trucking company has to work a little harder (specifically on the front end/app preparation side of things) to compensate for the handicap. To put it bluntly, your application needs to be as close to perfect as possible.

Here are the key factors that contribute to the high risk perception lenders have pertaining to the trucking industry:

Revenue Inconsistency

The trucking industry is subject to seasonal fluctuations and varying demand cycles. This inconsistency can lead to irregular cash flow, making it challenging for trucking companies to maintain steady revenue streams and meet financial obligations consistently.

Additionally, especially for truckers operating within the spot market, the price of loads is greatly affected by freight brokers, dispatchers, and even competition from newer (and younger) trucks who are willing to accept lower rates for freight.

High Operational Costs

Trucking companies face substantial operational expenses, including fuel, vehicle maintenance and repairs, insurance, and regulatory compliance costs. These expenses can fluctuate significantly, and for things like repairs, are often impossible to predict.

Credit Exposure

Trucking companies often have to wait for extended periods to receive payments from clients, leading to a reliance on credit. This delay in revenue can strain financial resources and affect the ability to cover immediate expenses, leading to increased borrowing and credit exposure.

Asset Depreciation

Trucks and other transportation equipment represent significant investments but depreciate over time. This depreciation can affect the resale value of the assets and reduce the collateral value for lenders.

Supply and Demand Dynamics

The demand for freight services can fluctuate due to various factors such as economic cycles, consumer trends, and industrial activity. These fluctuations directly impact freight rates and the volume of work available, affecting trucking companies’ revenue and financial stability.

Fuel Cost Volatility

Fuel is one of the largest expenses for trucking companies. Prices are subject to international market dynamics, geopolitical events, and policy decisions, none of which are within the control of trucking operators. Sudden spikes in fuel costs can severely affect profitability.

Let BLF assist you with any of your lending needs to ensure your application is perfect.

BLF is here to assist you

Our goal is to provide you with expert help and guidance for you needs. Whether you need funding or business services for your trucking company, you are in reliable hands.

Scroll to Top