Business Financing for Transportation Companies in the UK

There are over 1.86 million people employed in the transport and storage industry in the UK, accounting for 5.6% of the country’s GDP; 89% of all freight on this small island is moved by road, and there are nearly 60,000 road freight companies vying to do so. But despite the industry’s size and importance, UK transport businesses are under threat. 

There’s no need to face this threat alone though; affordable, accessible business financing from a trusted lender can give your company the edge it needs to survive. Here we have demystified the borrowing process and provided all of the information you need to make a sound financial decision for your business. Let’s get started:  

What is business financing?

Business financing is a blanket term for any kind of financial support received by a business, from any source. This means that “business financing” includes things like grants and private investment, but the term is more commonly used to denote repayable forms of finance from large, public lenders – like loans from banks.

How does business financing work?

All business financing follows the same basic pattern:

1. A business realises it needs money for one or more business expenses
2. The business chooses and then applies for financing from a specific lender
3. The application is considered and either approved or declined
4. If approved, the applying business receives financing; if declined, the business must seek financing elsewhere
5. Once financing is received, the business must follow all of the terms of the financing agreement to repay the borrowed funds

Of course, the nuances within each of these steps can vary quite a bit, but the principle is the same across all financing types and for all companies.

What types of transportation companies can get business financing in the UK?

Business Types

Businesses of all sizes in the transportation industry are eligible for business financing, including those in:

• Haulage
• Trucking
• Logistics
• Warehousing
• Couriering
• Removals
• Air transport
• Rail transport
• Sea transport
• Passenger transport

Financing Eligibility

Just because a business is potentially eligible for financing, doesn’t mean it will be able to get it from anywhere. Every lender of business financing has their own unique set of criteria that they assess applicants on, and it is only if an applying business meets these criteria that it’ll be able to get financing approval from that lender. 

As each lender differs, there is no single set of criteria that a business must meet in order to be able to access financing – and options exist even for businesses in unusual situations, with difficult histories, or with bad credit. But, in general, it’s common for lenders to assess applicants based on:

• Length of operating history
• Business credit history
• Revenues – including both past and expected future revenues
• Business assets
• Existing business debts
• Size of business

Don’t worry if your business is very small, new, has a low credit score, or inconsistent revenues – you will still be able to access financing, just not every type. 

Why might transportation companies in the UK need business financing?

There are a myriad of challenges those in the UK transportation sector are facing, many of which need cold hard cash to overcome. The major threats in this industry at the moment include:

• Workforce shortages; there is currently a shortfall of 50,000 HGV drivers in the UK, and other transport subsectors are seeing similar issues
• Rising costs; the cost of operating an HGV has increased by 10% over the last 12 months alone
• Economic uncertainty; Brexit, Budget changes and changes to tax laws are all creating budgetary pressures
• Regulatory compliance, especially in the face of Brexit and the disruptions to trade experienced because of it
• Technological advancements; a transition to digital in all areas of business operations requires investment in technology and staff training
• Environmental concerns; energy efficiency is rapidly becoming a key concern for those in every industry, but especially in transport, where fuel consumption and emissions are such an integral part of operating
• Infrastructure investment; there is a national shortage of lorry infrastructure across the country; for example, some areas have only a 7% availability in HGV parking spaces
• Supply chain resilience; truck operators in particular are experiencing extreme difficulty in obtaining new vehicles in a timely manner

How can transportation companies in the UK use business financing?

Business financing is designed to help businesses achieve their goals – whatever those goals might be. And of course, different transport businesses have different goals, and may be facing different challenges. For this reason, business financing can be used for almost any business-related expense, including:

• Staff wages, training, hiring costs, or other personnel-related expenses
• Vehicle and equipment purchase, maintenance and repair
• Fuel
• Inventory
• Licensing
• Permits
• Insurance
• Technology
• Rent, mortgage and other property costs
• Utilities
• Renovation
• Paying suppliers/contracts
• For working capital

The price-per-mile cost for UK transport road vehicles has risen by a massive 16% over the last three years, and many businesses are finding it difficult to meet basic operational costs, let alone afford the investment needed to pivot to new technologies and markets. But no matter what cost your business needs to meet, financing is a realistic solution.

What types of business financing are available to transportation companies in the UK?

There are almost as many types of financing as there are ways to use it, so let’s just look at the five most common options:

1. Traditional business loans

In a nutshell: 

• Borrowing amounts from £5,000 to £750,000 (if unsecured) or more (if secured)
• Terms from 1 month to 7 years
• APRs of 7%-15% (if unsecured) and from 4% (if secured)
• Applicants need to meet certain criteria, including a minimum credit score, debt-to-income ratio, expected revenue and length of operational history in order to qualify
• Applications can take several weeks to process

Useful for: 

• Large, long term expenses, such as new premises, or significant investment in infrastructure/technology/equipment
• Well-established businesses able to meet the strict eligibility criteria

Less useful for: 

• Short term or urgent cash needs
• Small expenses
• Fluctuating expenses
• Flexible repayment needs
• Businesses unable to meet the strict eligibility criteria

2. Online business loans

In a nutshell: 

• Borrowing amounts from £5,000 to £750,000 (if unsecured) or more (if secured)
• Terms from 1 month to 7 years
• APRs from 4% – 30%+
• Generally have more flexible eligibility requirements than traditional business loans, with some lenders specialising in lending to those with poor credit, low revenue, new businesses, etc. 
• Application processing times are usually shorter than with traditional loans, with some offering approval within just a few days

Useful for: 

• Medium to large expenses, such as property, equipment, infrastructure, inventory, etc. 
• Businesses in a range of situations

Less useful for: 

• Fluctuating cash needs
• Flexible repayment needs

3. Merchant cash advances

In a nutshell: 

• Borrowing amounts range from £3,000 to £300,000 (always unsecured)
• Flexible repayment terms that adapt to changing sales volumes, with no set term
• No interest is charged – instead total cost is set at the start of the agreement and does not change
• Applicants need to meet fewer criteria to access merchant cash advances, as the primary eligibility criteria is the existence of regular credit card sales
• Applications are processed quickly, usually within one to two days

Useful for: 

• Small to medium expenses, such as working capital, inventory, fuel, utilities, etc.
• Any business that accepts credit card payments from its customers
• Flexible repayment needs (e.g. for seasonal businesses, those with tight budgets, those dependent on revenue to repay debt)

Less useful for: 

• Large long term expenses (e.g. property)

4. Equipment loans

In a nutshell:

• Borrowing amounts from £1,000
• Terms range from 3 to 10 years
• APRs from 6% up
• Loans are usually secured against the equipment being financed, so credit, income etc. may not be as much of a factor as with a traditional business loan
• Unlike other forms of financing, equipment loans can only be used to pay for specific equipment, and no other business expenses

Useful for:

• Equipment purchases

Less useful for:

• Any non-equipment business expense
• Flexible repayment needs

5. Business lines of credit

In a nutshell:

• Credit limits from £1,000 to £250,000
• Terms are open-ended, although some lines of credit require regular renewal
• APRs from 9% to 25%, and interest is only charged on the credit that’s actually used
• Applicant eligibility criteria is strict and similar to business loans (credit score, income, existing debts, etc.)
• Applications can take several weeks to process

Useful for:

• Access to flexible amounts of cash (e.g. to cover changing expenses, such as renovation costs, or for emergency expenses)
• Occasional borrowing needs

Less useful for:

• Medium to large known costs
• Quick cash needs (unless the line of credit has already been set up)
• Ongoing expenses (as interest charges quickly add up)

If you’re interested in learning more about business financing in other industries, we’ve got you covered. Find out everything you need to know about business financing for retail, pubs and restaurants, and hotels and lodgings.

Where does UK business financing come from?

Transport companies can access business financing via a number of different lenders, including high street banks, challenger banks, digital banks, alternative financial services companies, equipment manufacturers, private lenders, community development organisations, and the government. Here are some of the common attributes of the main types of lenders:

High street banks:

• Offer mainstream business financing products such as traditional business loans and  business lines of credit
• Usually have strict borrower eligibility criteria
• Typically have the most competitive interest rates on the market
• Can take several weeks to process paperwork

Digital and challenger banks:

• Offer a broader range of financing products, including small and large business loans, lines of credit, bad credit business loans, and quick cash loans
• Can have more flexible borrowing criteria, but access to competitive terms requires a good borrower profile
• Can offer quick application turnaround
• May not always have transparent terms and costs; borrowers should exercise caution when assessing their products

Alternative/specialist lenders:

• Usually offer more niche products, or cater to niche borrowers (e.g. those with bad credit, those seeking a non-traditional form of borrowing)
• Examples include merchant cash advance companies, equipment financing specialists, invoice factoring specialists, etc.
• Usually do not offer mainstream products (e.g. large business loans for well-established companies)
• Can have a broad range of terms and borrower criteria
• Application processing times vary according to the lender; some may take just a day, others a week or more 

Community development organisations and the government:

• Typically focus on lending to small, minority-led, at-risk businesses, or those in specific areas or meeting specific needs
• Can be extremely cost-effective
• Application criteria are usually very restrictive
• Mostly offer mainstream financing products, such as small business loans
• Not known to be fast-moving, may take weeks or even months to access financing via this route

How can a transportation company in the UK get business financing?

1. Choose a lender and product to apply to; as mentioned above, different lenders have different products and eligibility criteria for their borrowers; it’s incumbent on each business to understand what kind of financing it needs, its financial situation, and its priorities.
2. Apply; every lender has their own application process, so you need to navigate to the lender’s website (or physical premises) and complete an application form. Some supporting paperwork will be required; not every lender asks for the same paperwork, but it is likely you’ll be asked for one or more of the following:
   • Business legal documents
   • Business bank statements
   • Debit/credit card receipts for the last three months
   • Financial statements for the business
   • Tax records
   • Business plan
   • Details of existing contracts with vendors/debtors
   • Details of business assets
   • Personal details for the business owner(s)
3. Manage financing once it is received, according to the terms of the financing agreement.

If your transport business is considering financing, Swiftfund can help. Contact us to speak to one of our experts today.