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introduction to freight brokering

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Financing Your Business

Costs to Start and Operate Your Business

The start-up costs to start most “brick and mortar” businesses are at times astronomical at worst and very difficult at best. Fortunately for freight brokers, it is much less costly to get started. It can be a work-from-home business, no rent, no employees, no inventory. Assuming a person has a good computer, telephones, and a fax, the start-up costs can be less than $1,500. That is not bad and, and with training included, it is less than $3,500 to get started.

There are four types of costs related to freight brokering. Let us take a look at the details of what these costs are:

  • Actual start-up costs

    These costs include:

    • Your MC#, $300 one-time cost

    • Evidence of a $75,000 surety bond or trust fund, $995 for the first quarterly installment and

    • Your BOC-3, $39.

    You will also need a UCR registration. It is $76 if purchased directly from the government.

  • Payments to the truck, to your carriers

    These will be your largest expenses by far. You can expect to pay out 80% to 90% of each dollar you earn to your trucks. The remainder of between 10% to 20% is what you have left to pay your operating costs. This remainder is your ‘gross profit margin’ (discussed in the Training Manual)

  • Operating costs

    These costs would include payments such as your load board fees, your telephone expense, and your office supplies. Starting out, these three expenses will most likely be your biggest operating expenses. Operating expenses also include salaries, rent (if applicable) and anything else needed to maintain your business. You might only be looking at about $250 – $400 per month.

  • Capital expenditures

    These expenditures would include items that are normally depreciated because they have a useful life greater than one year. Equipment, vehicles and furniture would fall into this category. Most individuals already have some type of office in their home – computer, fax, telephone.

Money Sources for Starting and Operating Your Business

There are ten money sources identified here for starting and operating your business:

  • Borrowing

    Borrowing from banks, credit cards, family, friends or from yourself are other money sources. If you loan the company money from your personal assets, you may treat the loan either as a formal loan or as capital infusion (See 2 below).

    Any loan arrangement should be formalized with an agreement specifying the cost and repayment terms.

  • Capital Infusions

    Capital infusions might be money funds from your savings, retirement funds or investments. These would be YOUR monies that you are giving to your business. These would be equity infusions and your subsequent profits would give you your return on equity.

  • Outside Investors – Partners

    Family and/or close friends can form a partnership with you and invest money into the business. Different profit/equity sharing arrangements should be formalized with a good partnership agreement. Partners may be “silent” or actively involved.

    A good partnership agreement would spell out the scope of authority, duties, responsibilities and expectations of each partner in addition to the profit/equity sharing arrangements.

  • Selling Assets

    Since most freight brokerages are non-asset businesses, this type of money source is usually not available. But personal assets can be sold to provide money to either loan to the start-up company or to provide a capital infusion.

  • Using Factors

    Using factors may be a good source for paying trucks once the business is underway. Factor companies will advance monies to the freight broker based upon the broker’s accounts receivable. The freight broker normally does not undergo any type of credit check because the factor will be looking to the creditability of the shipper.

    This type of financing will normally be more expensive than bank financing but it depends on the circumstances. The most important item is the fact that this type of financing is very convenient.

  • Sales and Revenues

    Sales and revenues will hopefully be the primary source of cash AFTER you have gotten established.

  • Grants

    Grants are monies given outright to business owners due to the fact that the business owner falls into a certain category. For example, some states or regions hard hit with a poor economy may offer grants to new business owners. This money is usually not expected to be paid back.

  • Disability insurance

    If you have disability insurance and if you are deemed to be eligible to receive payments, your start-up and some of the operating costs could be covered.

  • Angels

    Angels may be individuals or organizations who give money to worthwhile causes or individuals. Angel financing is a long-shot but this type of financing is very real to those who are the recipients.

  • The Newest Money Source – Peer to Peer Lending

    In Part 5.10 of the Training Manual, there is more information on this source of finding money

Other items to consider:

  • Term loan

    This is a traditional bank loan with a fixed or possibly variable interest rate for a certain number of months or years. For some people, getting bank financing is difficult. Nowadays, many banks are requiring that a business be in business for at least three years before asking for a loan. The thing to remember is that each lender has its own policy.


Check out ‘Micro-Loan’ lending sources for Small Business Administration (SBA) guaranteed loans. They provide loans between $5,000 to $25,000, low interest rates and no collateral. To Explore Your SBA Financing Options, Go Here Now: SBA Micro Loans. This particular provider is ‘the Nation’s #1 SBA lender by volume’.


Do not give up too soon when seeking financing.

Even if you are turned down by one lending source, it does not mean you will be turned down by every other one. A good business plan, cash flow projections plus providing other useful information will help you go a long way in working with lenders.

Line of credit – this type of financing may be through a traditional bank and may be contingent upon your accounts receivable using these as collateral. With a line of credit, you can draw down and pay bills and you can pay back anytime your cash flow permits it.

This reduces your carrying costs and interest expense.

Credit cards – how many times have you received offers or promotional checks with low introductory rates? These may actually become a good source of financing. Transaction fees usually run 3% with a minimum of $35 and a maximum of $75. Weigh the cost with the benefit here.

Did you know that you can often make a phone call to request a higher line of credit or to reduce your current interest rate? If you are a good customer, they may make it very easy for you to get a higher line of credit.


A variety of reasons exist for either getting or not getting bank financing
Here are some

Success

  • Having a good business plan

  • Knowing what the estimated costs are

  • Knowing how to project future activity

  • Not overestimating income too soon

  • Relying upon your analysis not the lending institution to tell you what to do

Failure

  • Not having a good business plan

  • Not knowing what the estimated costs are

  • Not knowing how to project future activity

  • Over estimating income too soon

  • Being too dependent upon the financial institution to tell you what to do