Small Trucking Firms See Tighter Lending Standards
[Stay on top of transportation news: Get TTNews in your inbox.]
With a freight recession underway, industry experts said creditors are applying tighter standards to many trucking firms, or any firm with a troubled history.
While experts said there is no sign of a coming “credit crunch” like the last one that troubled the nation during the Great Recession from 2007 to 2009, it’s clear some smaller firms have been hit by tighter standards — or just a flat-out “no.”
Tighter credit could spell closures for more “on the edge” firms that are cash-poor or barely making a profit, because when loans become harder to get, troubled companies often have to shutter when they don’t get a lifeline from a lender, experts said.
RELATED: Economist Noel Perry warns of more shutdowns after LME padlocks doors
And the tighter market for credit for trucking firms is quite a change from the market from 2016 to 2018, business officials said.
“For the last three years, the only thing we saw was loosening (of credit),” said Robert Misheloff, president of Smarter Finance USA, a Las Vegas lender who seeks credit for freight firms. “Their appetite was getting bigger and bigger."
Misheloff
But at the end of March and since then, creditors have not been so hungry to loan to smaller firms, Misheloff said.
“It seems to us it was a lot of tightening ... in a short amount of time,” he said.
Misheloff said lenders seemed to target “smaller ticket” firms. Among the changes applied to loans, Misheloff said, were larger down payments and a requirement that used trucks eyed for purchase have fewer miles on them.
Still, there is no indication that some sudden trucking firm failures this year have roiled the overall credit market. There have been at least six major trucking firm failures in 2019, including two in July. Minnesota’s LME and Ceres, Calif.-based Timmerman Starlite Trucking closed this month. The others were New England Motor Freight of Elizabeth, N.J., Falcon Transport of Youngstown, Ohio, ALA Trucking of Anderson, Ind., and Williams Trucking of Dothan, Ala.
The failures of these firms were mostly caused by their companies’ unique problems and not industrywide woes, said Avery Vise, analyst and vice president for FTR Transportation Intelligence in Birmingham, Ala.
Vise
Vise said, industrywide, credit requirements have not changed as much as costs have gone up. These higher costs have plagued firms on the smaller end.
For bigger firms, the doors for credit lines are likely wide open, said Tim Denoyer, vice president and senior analyst at ACT Research.
“It's a bifurcated market,” Denoyer said. “I don’t think there is a problem with big fleets or even medium-sized fleets.”
Denoyer said ACT Research believes the nation is in the middle of a freight recession and that it has been going on for six to nine months. The freight slowdown began in late 2018, Denoyer said, and will likely end after a year or 18 months.
The more competitive freight market will have some creditors looking at books closely. One thing creditors are likely looking at is the decrease in freight volumes, as well as the 20% decline in spot rates, year over year, Denoyer said. Lower rates mean less revenue, Denoyer said.
Denoyer
But the credit woes of smaller firms are not a macroeconomic sign, some experts said. The last recession, from 2007 to 2009, was based in credit — and caused a massive downturn when borrowers got overextended on home loans. The resulting chaos rippled through other credit markets and even safe borrowers, in diverse industries, got closely examined.
Today, the overall economy is strong, said another industry credit expert, and the trucking industry likely can expect good returns in 2019.
“It's still going to be a good year,” said Keith Kirby, credit relationship manager for First Tennessee Bank, a financial institution that does a lot of business with freight companies.
Kirby said he has not detected any problems in applications for credit that come his way, and the bank has not changed its underwriting practices.
So what should smaller firms do?
Priyanka Prakash, a lending and credit official at Fundera Inc., said smaller firms and owner-operators should regularly check their personal credit and correct any errors they detect.
Fundera, an online marketplace of small business financial products based in New York City, makes loans to freight companies. Prakash said it’s best to apply for credit before a company-specific downturn or a troublesome season. That’s because lenders are wary of making loans when a company's cash is low.
“Sometimes it's better to wait until you can show some revenue on the books,” Prakash said.
