A haulage business that is well managed has a lot of income and growth potentials but finding capital for this type of business is not usually easy because it is a very capital intensive business.
Apart from the initial costs of staring the business which includes costs of purchasing trucks, registering the business and all initial set up costs, the costs of running and maintaining the business is also on the steep side. This article seeks to highlight the numerous ways which could be used to finance your haulage business.
Before you start looking for funding for your haulage business, you must have a business plan written. The business plan must clearly state the required funds for starting the business, the amount you already have saved and how much more you need.
You should also have a statement of projected expenses and working capital which would be needed to operate the business. When you have all of this figured out, you would have a clear idea of how much you need and only then should you start to consider credit financing options.
When seeking for credit financing options, it is usually said that the first set of people you should contact are family, friends and fools. You may have some family members who have money they do not need and would be willing to borrow you for an interest.
You may also have friends who would be willing to become partners with you in the business and invest some money into the business. As for fools, they are the ‘money-miss-roads’ who have a lot of money but have no business idea or consider themselves as people who are ‘not cut-out for business’.
You can offer to help such people invest their money and reward them handsomely for it. Apart from borrowing from friends and families, here are several other ways to finance your haulage and logistics business-:
8 Ways to Finance Your Haulage and Logistics Business
1. Government Grants
Yes, you can obtain government grants for your haulage business even though grants are mostly given to companies involved in research, social and technological advancement projects.
You can get a grant for your haulage business if you are able to come up with concepts that make you eligible for a grant. For instance, you can get environmental grants by using only trucks that make use of alternative sources of fuel. Visit the government grants website to see if your business would qualify for a grant.
2. Bank Loans
Although it is usually very tough for new entrants into haulage business to get bank loans, a good business plan and a solid collateral security can increase your chances. You would also need a good credit rating to be able to get bank loans for your haulage business.
3. Franchise Agreement
You can also finance your haulage business through franchise agreements. In this condition, you as the franchisor would go into agreement with other parties known as the Franchisees.
These people would register their trucks under your business and you would be in charge of managing it for them in exchange for a certain sum which you would pay to them on a monthly basis. All the operations of the business and maintenance of the trucks would be done by you; the franchisors would only collect his earnings at the end of the month.
Crowdfunding is another very smart way to finance your haulage business. Crowdfunding involves pooling of resources together by people who have similar business interests. There are lots of people who are interested in haulage business but have challenges with capital. You can easily find such people on the internet and pool resources together to start the business and also share the proceeds from the business.
5. Equipment Leasing
You could also rent trucks for your haulage business. This is known as equipment leasing.You would enter into an agreement with a person or company that has trucks to rent out for a periodic fee. The most popular types of lease agreements in Nigeria are operating lease and finance lease.
For operating lease, ownership rights are not transferred to the lessee. The lessee uses the truck for a period of time and pays rent on usage for as long as he continues to use the truck. Under financing lease, ownership is transferred to the lessee upon completion of payment of the agreed sum.
6. Cooperative loans
Cooperative loans are usually easier to get than bank loans. They also offer better interest rates compared to banks. To get cooperative loans, you must look for a credible cooperative society and become a member. Then you would have to contribute a specific percentage of the amount you would like to borrow.
Some cooperatives take 30% while some would require up to 50%. When you have contributed 50%, you can now borrow 50% extra. So if you need N6, 000,000 to start your business, you would need to contribute N3, 000,000 then you can borrow N3, 000,000 extra.
7. Freight Bill Factoring Financing
After you have set up your haulage business, you would need money to manage the business. You would need money to pay workers, repair vehicles, pay insurance premiums and do all sorts of activities to keep the business going. Sometimes, funds might not be readily available especially if you offer your clients credit.
At other times, you may have contracts to execute without upfront payments; this is where freight bill factoring financing comes in handy. Freight bill factoring financing provides funds required to meet up with cash flow requirements by borrowing you money on your existing freight bills.
8. Borrowing against your retirement savings/life insurance
If you have a life insurance policy that builds up cash value, you could borrow against it as a way to finance your haulage business.
You could also do the same with your retirement savings but you have to be very careful with this method of financing because any slight mistake or mismanagement may cause you to lose your retirement savings or your life insurance contributions.