Overhead Expenses: Loans And Cash Advances Are Not The Answer

Overhead expenses make up a large portion of outgoing capital in trucking business. Fuel, equipment maintenance, payroll, insurance, leasing agreement, and regular utilities can take a large portion out of any generated revenue. However, with payment schedules on invoices and outstanding customer accounts, cash flow may not always provide enough to cover overhead expenses without dipping into savings or seeking outside financing. Both fleet owners and independent drivers are often tempted by short-term loans and cash advances, but they can cause more harm than good.

Using Cash Advances For Overhead Expenses

At first glance, cash advances seem like a great solution to cover overhead expenses when cash flow is tight. Cash advances do not have regular payments schedules, which are advertized as “flexible financing.” Cash advances also have no debt or prepayment penalties, which gives borrowers a bigger advantage than using bank loans. But the devil is in the details. Cash advances have no payment schedules, but there is a set date by which the whole amount, plus interest, must be repaid. Speaking of interest, the rates are typically much higher than regular loans, because no collateral is used, and it does not place debt on the balance sheets. If there are cash flow problems and overhead expenses are not getting paid, a merchant cash advance can lead to more and compounded financial problems in the near future.

Using Short-Term Loans For Overhead Expenses

Short-term loans are another solution used by fleet owners and drivers who are running into cash flow problems or are having a hard time meeting overhead expenses. Loans have traditionally been the method to getting the working capital needed to overcome obstacles. But loans negatively impact credit ratings, and they saddle truckers with debt. Even if the solution is temporary, truckers and fleet owners still have to find a way to cover overhead expenses and pay off the loan on top of it all. Additionally, loan requirements are a lit higher than they were only a few years ago. Expect to need excelling business credit ratings and a strong financial history to get a bank to consider a loan application.

Taking Care Of Overhead Expenses

Instead of entering an agreement which will put truckers in a financial bind, many are turning to a solution which eliminates payment schedules, gets payment on outstanding invoices, and has nothing to do with debt, loans, or cash advances. At Express Freight Finance, we provide working capital solutions with our invoice factoring program. Truckers and fleet owners can cover overhead expenses, rightsize their cash flow, get extra working capital, and sidestep the need for loans and cash advances. Contact our offices today to learn more.