Money Matters: Protecting your financing options in a down market

Sharply rising interest rates coupled with a stubborn freight recession and ever-increasing equipment-prices are creating a challenging market for fleets and their financiers, alike.

“I’d say the market is probably the most complex it has been in some time,” says Brad Gray, director, sales and marketing with Daimler Truck Financial Services Canada. “We’ve gone through the last couple years with a series of volatile interest rate increase. Now, we’re combining that with delinquencies we haven’t seen since 2008-2009. I think the intersect of that, with high equipment prices coming off two years of rapid growth for some people, has lent itself to one of the most unique times I’ve seen.”

Stressed man on computer at home
(Photo: iStock)

Throw in rising fleet bankruptcies that are scaring some lenders out of the space entirely, and you have a perfect storm that makes it increasingly challenging to finance new equipment. Not doing so, of course, means fleets find themselves outside their normal trade cycles and dealing with higher maintenance and breakdown-related costs.

“Twelve months ago, it was easy to get financing,” says Michael Fox, Mitsubishi HC Capital Canada’s vice-president of sales for Ontario and Western Canada. “Credit was readily available. Very rarely was someone not finding financing. It was being gobbled up.”

That has since changed, especially with smaller businesses, Fox adds.

“It seems to be impacting the less-than-strong companies with less-than-strong balance sheets,” Fox says of difficulties in obtaining credit. “Balance sheets have been impacted severely.”

Prepare for more scrutiny

A tough market with increasing fleet bankruptcies means lenders will be more selective about who or what they finance.

“We want to go out there and meet them face to face,” says Gray. “We really want to know what’s behind the business and who’s operating it…Let’s have a relationship. Let’s be transparent. Let’s, on both sides, share information.”

Lenders want to see sound financial reporting. “That’s an investment in their business. We look for properly prepared financial statements,” Gray adds.

Fox says lenders will want to see two to three years of balance sheet performances, as well as historical data such as payment histories. “It’s very important to keep payments strong and not miss payments,” he adds.

Lenders may also want to know who a fleet’s key customers are. It’s more favorable to be dealing directly with the shipper than as a third-party carrier working primarily for other trucking firms, which can result in extended payment terms, Fox adds.

“A concerning trend is customers not getting payables on time from other carriers they subcontract to,” Fox says.

Longevity is another aspect of a fleet’s business that will be scrutinized. There was a record-setting influx of new fleets between 2021 and 2023, many of them on shaky financial footings now that the market has cooled and spot market rates have plummeted.

Be proactive when challenges arise

When experiencing cash flow challenges, it’s best to raise them with your lender before you miss that first truck payment.

“We certainly want to hear about it in advance,” Gray says. “We’ll meet with them and figure out what solutions are best for them. We have options available to them. We want to see them succeed. Over the last six to nine months that has been a big part of our business, providing customers assistance and working with them on plans. Helping get them to the next stage. As long as they’re able to really tangibly explain [the challenge] to us and give us something to work toward, our goal is to help them get to that next level. It’s definitely a worst case scenario when things go to the opposite way and trucks come back.”

Options, adds Fox, could include refinancing existing equipment and extending the amortization, resulting in lower monthly payments. Fleets may also be able to tap into the equity they have in other equipment.

Fewer options available

One of the difficulties of a tight market for fleets is that not only is money more expensive, but there could be fewer sources to borrow from. Lenders can exit the space when they deem the risk too high, or the returns on their investment to be inadequate.

Some will even ‘quiet quit’ the industry – departing it without announcing their exit.

“Some are discretely exiting the business,” said Fox. “They are putting parameters around the profile of the company they’ll deal with [to the point they no longer accept new business]. There are some that have exited completely.”

This creates upheaval in the marketplace that is detrimental all-around, Gray adds.

“A lot of [lenders] jump into the market when it’s hot. We’ve seen that the last couple of years. Things can change pretty quickly and they can exit as quickly as they come in,” he says. “It puts stress on the environment when you have [lenders] that are in and out of the business. As an industry, it presents challenges, because ultimately it leaves customers without solutions.”

Borrowers should take into consideration a lender’s commitment to the trucking industry. How long have they been around? Have they managed various cycles within the industry? How significant a part of their business is truck and trailer financing? Those are a few of the questions borrowers should be asking of their lender.

Choosing a specialist whose business is entirely – or mostly – the trucking space can also be advantageous. They better understand the cycles and seasonality of the business, and may be more creative than a major bank or generalist when it comes to finding solutions.

“Banks in the trucking market have frozen operating loans on trucking companies that aren’t matching the covenants required of the bank,” Fox says. “We don’t do that. A company can be struggling and as long as we’re getting paid our bills, we may not lend you more, but we’re not going to come in and close something down. Our interest is, we want the company to be healthy and make money and pay us on a regular basis.”

Preparing for the next upturn

Trucking’s a cyclical business, and the good times will return. The freight market will balance out and rates will increase. Fleets should already be preparing for that upturn in the market and determining their financing needs ahead of time, advises Gray.

“What happens is, we get 100 customers in the same position and then there’s a massive funnel coming into the credit department of lines that need to be increased,” he explains. “I think understanding that cycle and making sure we proactively engage – or they are proactively engaging us [is important] – because the last thing they want is to have an opportunity to buy trucks, trailers, or service a contract and they’re waiting on credit.”

When adding new equipment to the fleet, Fox suggests structuring terms more conservatively. “If you can afford it, go with shorter terms. It makes it more appealing to the lender,” he suggests.

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James Menzies is editorial director of Today's Trucking and He has been covering the Canadian trucking industry for more than 24 years and holds a CDL. Reach him at or follow him on Twitter at @JamesMenzies.

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  • hay James… I missed you at Truck World… hope things are going well for you. I like your articles. Well written.