Logistics Loan

Find out all about the different logistics loan options that can be used to meet the needs of your business.

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What are common funding needs of logistics businesses?

The logistics industry comprises of a vast spectrum of businesses - all of which play a role in ensuring that a product gets from transported from the manufacturer to receiver. The main activities covered by logistics service providers include transportation, warehousing, distribution, as well as shipping and receiving.

A logistics loan can cover a wide range of expenses related to running your venture. These include:

Adopt new technologies

With rising labour costs and the need for increased productivity to stay competitive, it’s critical that logistics companies implement new technology - like cloud based softwares, robotics and advanced analytics - so as to remain well positioned to tap on growth opportunities.

Logistics company Ninja Van is a case in point; tech algorithms, machine learning and a real-time parcel tracking system are just some examples of technology used in the company’s day-to-day operations. Emphasising on the importance of technology, founder Lai Chang Wen maintains that “Ninja Van needs to keep its digital and innovative culture alive and well, in order to prevent it from being ‘disrupted’ by competitors”.

Equipment purchase

Asset-based logistics providers will require significant upfront investment to build out their logistics network and fleet. Equipment loans and leases are external financing options you may want to consider for obtaining the equipment you require.

Overcome seasonal effects

The holiday season, along with key ecommerce shopping festivals can put great pressure on the supply chain. To better manage seasonal challenges, businesses need to invest in long-term strategies, such as having a pool of crowd-sourced drivers they can tap on, or utilising tools like demand forecasting and supply chain visibility platforms.

Fund expansion activities

External financing options can be a handy tool to help fuel your expansion plans, whether that’s growing your workforce, expanding your network of depots and sorting spaces, opening up a new location or capitalising on unexpected opportunities that arise.

What are common types of logistics loans?

Secured loan

Secured loans require that borrowers pledge assets as a collateral for the loan. Should the borrower default on the loan, the lender may sell off the assets to recover the amount owed. This form of financing is typically used to fund activities and purchases that require a sizable sum of capital, such as large-scale renovations and equipment purchases.

Invoice financing

With invoice financing, you aren’t taking on debt; instead, you’re freeing up capital owed to your business through raising cash against your existing invoices. This financing option lends itself to logistics businesses, as it provides them with quicker access to funds tied up in slow-paying customer invoices.

Line of credit

A line of credit provides borrowers with access to a pre-approved sum of capital. You can draw from the capital as and when required, and pay interest only on the amount that is drawn. It’s a flexible financing option that logistics businesses can tap on to fund short-term needs, such as payroll, expansion or operational expenses.

Equipment lease

An equipment lease isn’t a loan; rather, you’ll obtain the use of the equipment on a rental basis.

As such, you won’t be investing capital in the equipment, but instead make out monthly payments to your lender for the duration of the lease. When the lease ends, you’ll have the option of returning the equipment or purchasing it at fair market value. This is a common choice for business owners seeking to purchase technology tools, as they won’t have to bear the costs of maintaining and keeping out-of-date machinery at the end of the lease.

Tips to help you prepare for a logistics loan application

With the right preparation, you’ll stand a higher chance of obtaining the financing you require. Here are a couple of tips to point you in the right direction:

It’s all about timing

Adopt a strategic approach by timing your loan application. You’ll want to show your lender why it makes sense to fund your business, and not why you’re in need of a loan. Therefore, a better time to apply would be when you have a strong credit score, and are experiencing revenue growth for a duration of at least three to six months.

Improve your personal credit score

Your personal credit score can have an impact on your business loan application. That’s because a personal guarantee is often required by lenders - particularly for new business owners seeking out loans, as their venture has yet to establish strong business credit.

It also provides an indication of how you’re able to manage your money, and make your payments in a timely manner. As such, it holds weight in your lender’s decision to approve your loan.

To better your chances at obtaining external financing, here are some steps you can start off with to improve your credit score:

  • Review your credit report, and identify factors that are lowering your credit score

  • Ensure that your credit payments are made on time. There are two main categories of consumer credit: open-end and closed-end credit. Open-end credit, also known as revolving credit can be used repeatedly. Credit cards and home equity loans fall under this category. On the other hand, closed-end credit are obtained for a specific purpose, and are paid up within a stipulated time frame. Examples of closed-end credit options include mortgages and car loans.

  • If your credit is affected due to factors beyond your control, there are two options you can choose from to sort things out: submit a letter of explanation (complete with copies of documents that will support your claim), or seek assistance from a credit repair service.

Where can I get a loan for my logistics business?

Having a minimum annual revenue of $300,000, an operational history of two to three years and an estimated minimum average daily balance of $10,000 in your bank account are some of the criterias needed to qualify for a bank loan. In addition, drawn-out application processes - which can last up to a month for more complicated applications - can create delays in obtaining the funding you need, resulting in missed business opportunities.

With online lending platforms like Aspire, loan application processes are convenient, streamlined and speedy - submitting an application takes a matter of minutes, and you’ll be notified of your loan approval status in just 24 hours.

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