The core difference
A bank loan or line of credit is underwritten on you: your credit, time in business, financial statements, collateral and usually a personal guarantee. Freight factoring is underwritten mainly on your customers. The factor buys the invoice for a delivered load and collects from the broker or shipper, so it cares most about whether that broker pays.
That is why a carrier with a new authority or thin credit can often factor loads within days but would struggle to get a bank loan, and why a well-established carrier with strong financials can usually borrow more cheaply from a bank than it can factor.
How factoring works, briefly
You deliver a load, submit the invoice with the rate confirmation and signed proof of delivery, and the factor advances most of the invoice, typically within a day or two. When the broker pays the factor, the factor releases the remaining reserve minus its fee. A FreightWaves explainer on the cost of factoring puts typical rates at 1% to 5% of each invoice and describes factors funding within 24 to 48 hours.
Example: a $2,000 invoice factored at 2% costs $40. You receive the advance shortly after delivery and the balance of the reserve, less the fee, when the broker pays.
Once the broker receives a notice of assignment, it must pay the factor rather than you to discharge the invoice (UCC 9-406). Our guide to what freight factoring is covers the full process.
Side-by-side comparison
| Freight factoring | Bank or SBA loan / line of credit | |
|---|---|---|
| Underwritten on | Mainly your brokers' and shippers' credit | Your credit, financials, time in business, collateral |
| Typical cost | A percentage of each invoice | Interest on the balance, plus fees |
| Speed to first funding | Often days once set up | Weeks is common; depends on lender and program |
| Funding amount | Grows with the loads you haul | Fixed loan amount or credit limit |
| Collateral | Your receivables (the factor files a UCC-1) | Often equipment, receivables, other business assets, sometimes personal assets |
| Repayment | The broker's payment settles the invoice; recourse if it does not pay | Scheduled payments regardless of how the month went |
| Extra services | Broker credit checks, collections, often fuel cards | Usually none specific to trucking |
What bank and SBA financing costs
Bank loans are priced as interest, usually as a spread over a benchmark such as the prime rate. The Federal Reserve's H.15 selected interest rates release shows the bank prime loan rate at 7.00% as of October 30, 2026.
SBA-guaranteed 7(a) loans cap how far above the base rate a lender can go. Per the SBA's 7(a) terms and conditions, maximum variable-rate spreads are:
| Loan amount | Maximum rate |
|---|---|
| $50,000 or less | Base rate + 6.5% |
| $50,001 to $250,000 | Base rate + 6.0% |
| $250,001 to $350,000 | Base rate + 4.5% |
| Over $350,000 | Base rate + 3.0% |
Most 7(a) loans are capped at $5 million and generally run 10 years or less, longer for real estate or long-lived equipment. SBA does not require collateral on 7(a) loans of $50,000 or less; above that, lenders apply their own collateral policies. The SBA Express program allows loans and revolving lines up to $500,000 with a 50% SBA guarantee in exchange for using the lender's own processes. To qualify for any 7(a) loan, the SBA 7(a) overview says a business must be creditworthy, show a reasonable ability to repay and be unable to get the credit on reasonable terms elsewhere.
Approval is not assured. The Federal Reserve Banks' 2026 Report on Employer Firms, based on the 2025 Small Business Credit Survey, found that 42% of small businesses that applied for financing received the full amount they sought, and that applicants at small banks were the most likely to be fully approved, at 57%.
Comparing the cost fairly
A factoring fee is charged per invoice, so it looks small next to an annual interest rate. To compare them, think about how long your money is actually out.
Example: a 3% fee on an invoice the broker pays in 30 days is roughly the same cost as 36% a year in simple interest on that money. If the broker pays in 15 days at the same flat fee, the annualized cost doubles. A bank line at prime plus a few points is far cheaper for the same dollars, if you can get one.
The fair comparison is not "factoring fee vs. bank rate" but "factoring vs. what you can actually get." For a new carrier, the realistic alternative may be a credit card, a merchant cash advance or turning down loads. For an established carrier with good financials, it may be a bank line at a fraction of the cost. Use the factoring calculator with your real invoice sizes and broker pay times.
Also count the costs on both sides that are not in the headline rate: factoring add-ons such as wire, credit check and monthly minimum fees (see hidden factoring fees), and bank origination fees, guarantee fees, and the time spent assembling tax returns and financial statements.
Where factoring tends to win
- New authorities and thin credit. If a bank will not approve you, a factor that likes your brokers may.
- Fast growth. Funding rises with invoice volume instead of being capped at a fixed limit.
- Seasonal or uneven revenue. You pay fees only on the invoices you factor; there is no fixed monthly payment in a slow month.
- Collections and credit checks. A freight factor checks broker credit and chases payment, which a small office may not have time for.
Where a bank loan tends to win
- Buying equipment. A truck or trailer is a long-lived asset; an equipment loan or SBA loan spread over years matches it better than factoring, which only funds receivables.
- Established carriers with strong financials. If you qualify, interest on a bank line will usually cost much less than factoring the same receivables.
- Brokers who already pay quickly. Factoring short-dated invoices at a flat rate is expensive per day; a line of credit costs only for the days you use it.
- Thin margins. ATRI's 2026 operational costs update found truckload carriers averaging operating margins below 1% in 2025. On margins like that, a few points per invoice can be the difference between profit and loss.
Using both
Many carriers do. A common pattern is an equipment loan for trucks and factoring for working capital in the first years of an authority, then moving to a bank line of credit or selective factoring once the business has a few years of financial statements. If you already have a bank loan secured by your receivables, check whether your lender must consent before you factor, because a factor will want first position on those receivables. Our factoring vs. line of credit guide goes deeper on that combination.
Questions to decide
- How quickly do you need the money, and for what: working capital or equipment?
- Would a bank approve you today, and at what rate?
- How long do your brokers actually take to pay?
- Can your margins absorb a percentage of every factored invoice?
- What contract terms would you be accepting: length, minimums, termination fees, recourse? See how to read a factoring contract.
Frequently asked questions
Is factoring more expensive than a bank loan?
Usually, when measured as an annual rate, especially on invoices that brokers pay quickly. It can still be the better choice when you cannot get a bank loan, need money within days, or your funding needs grow faster than a fixed credit limit.
Can I get factoring with bad credit?
Often, yes. Factors focus on the creditworthiness of the brokers and shippers who owe the invoices. They will still check for tax liens, existing UCC filings on your receivables and active operating authority.
Can I have a bank loan and factor at the same time?
Yes, if the loan is not secured by the same receivables or your lender agrees to subordinate its claim on them. Equipment loans secured only by the truck usually do not conflict with factoring.