Freight Factoring vs. Traditional Loans: Which is Better for Owner-Operators? - OTR Solutions

Freight Factoring vs. Traditional Loans: Which is Better for Owner-Operators?

Freight Factoring vs. Traditional Loans: Which is Better for Owner-Operators?

As you probably know, in the world of being an owner-operator, cashflow security is vital. In this article we’ll help owner-operators understand the key differences between a traditional loan and freight factoring. Let’s dive in! 


Why Owner-Operators Consider Loans

Trucks break, payroll’s due, fuel is costly, and thousands of other financial reasons are why a vast majority of trucking companies consider a traditional loan. But is it better than freight factoring? Oftentimes it depends on the situation the owner-operator is in. Just know that both do carry a load of unique benefits.


Benefits of a Traditional Loan

  • Can finance a greater amount of cash
  • Far more lenders to choose from


Disadvantages of a Traditional Loan

  • Impacts credit score, credit check required
  • Interest rates
  • Subject to market conditions


Why Owner-Operators Consider Freight Factoring

Now that we’ve covered traditional loans, it’s time to delve into the world of freight factoring. As a freight factoring company ourselves, we promise we’ll be as unbiased as humanly possible.


First things first, you should know that there are two types of freight factoring: recourse and non-recourse. 


Recourse factoring is very similar to a traditional loan. The carrier submits an invoice to the factoring company and the factor pays the carrier for the invoice, usually within a few minutes, which is far faster than many traditional loans. The downside to recourse factoring is that if the client does not pay the factor, the carrier will be responsible for paying the difference back to the factoring company.


Non-recourse freight factoring is similar to recourse factoring except for the risk part. In non-recourse factoring, the factor assumes the risk of non-payment, so you don’t have to worry about disrupting your cash flow. 


Benefits of Freight Factoring

  • Faster funding
  • No credit impact or credit check
  • No interest rates* 
  • No repayment**
  • No minimums***


*Most factoring companies charge no interest rate, however, a recourse factoring company might. 

**Recourse factoring companies may require a repayment. 

***Some factoring companies have a minimum per-invoice requirement before an invoice will be factored.


Disadvantages of Freight Factoring

Unlike traditional loans, freight factoring has far fewer disadvantages. 


Truth be told – if you’re an owner-operator and you want to be serious about protecting your cashflow, non-recourse factoring is the best choice for you.


  • Not paid 100% of invoice value
  • Various fees (scanning, broker credit check fees, etc.)


The Direct Comparison 

Want to look at things at face value? Below you’ll find a quick reference table to help you determine the winner.


Comparable Table Email (6)


Freight Factoring? We’ve Got You!

It’s pretty clear that if you need quick cashflow security, freight factoring is a great choice for your trucking company. However, if you’re in need of a new truck, factoring may not cut it for you; a traditional loan with a long-term repayment plan may be your best bet. When you partner with a factoring company like OTR Solutions, you gain access to traditional lenders who offer better rates thanks to your factored invoices—it’s a win-win!


Need freight factoring services? OTR Solutions has your back with our true non-recourse freight factoring solution. Drive with cashflow security and unlock tools to succeed today.


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