Now is a great time to look into purchasing a FedEx Ground route of your own. Ecommerce and online ordering are booming, and even as things return to a “new normal” in some areas, the demand is not dwindling.
That could be because as a result of the global pandemic, people have discovered the ease of ordering items online they might have gone out to purchase before. Either way, FedEx Ground Routes are a great investment right now. However, a common question is how these routes are financed.
There are a lot of options, but like with any other small business, often one of the best deals can be found by getting an SBA loan. How does that work when dealing with a FedEx Route.
Vetting the FedEx Ground Route Seller
There are a lot of FedEx ground brokers out there, and a lot of owners who are willing to sell routes, but one key to getting the right route is to use a trusted broker, like Route Advisors, and to be sure that the route seller has valued the route properly.
The reason? Even when it comes to other businesses, 95% of owners tend to overvalue their business for a variety of reasons. So you need a solid, data-based business valuation. This is especially true when dealing with the SBA and applying for a loan. They want to see a valid, and fair valuation. Thus it is important to vet the seller and the price they have set for the route thoroughly.
Some route owners my offer seller financing for amounts the SBA loan will not cover, but there are rules when it comes to this money, and you need to know them before you set up any deal. We’ll talk about that in a moment. First, let’s address the down payment.
The Down Payment
One of the attractive things about an SBA loan is that you can often put down as little as 5-20%. For things like a FedEx Route, the preferred amount is 20%, and if you don’t have at least 10% down, your supplemental financing options may be limited so they don’t affect your ability for on-time loan repayment.
You also have to be careful about your source for the down payment. Typically you can’t borrow it, and that can include getting a home equity loan or other lending sources that might be allowed by other types of a purchase agreement.
One key to getting an SBA loan is to work with a bank or other financial institution that has successfully financed routes before and has experience with the unique requirements you will need to meet. Don’t discount the value of having both an experienced route broker and an experienced lender.
Personal Assets and Credit Score
One difference between other business loans and purchasing a FedEx Route is that routes are largely unsecured. You have the promise of income, but many assets, like FedEx trucks, actually depreciate over time rather than being worth more. So when you approach a lender about a loan for a FedEx route, whether or not you get approved will depend on some key factors.
First, your personal credit score will matter a great deal. If your score is borderline, sometimes a co-signer or even taking some time and efforts to improve your score will be worthwhile. Not only will you be more likely to get approved, but your interest rates and terms will be better, lowering your monthly expenses.
Second, if you have personal assets to secure the loan, that will be helpful as well. This is why you cannot borrow your down payment using home equity. Things like your retirement savings, equity in your home, and other valuable assets can serve as collateral, letting you get the loan amount you need to purchase a FedEx Route.
Supplemental FedEx Route Financing
What if your SBA loan is not enough to make the purchase? There are some supplemental financing options, but there are rules as well. Your SBA lender’s primary concern is that you be able to pay off the loan they offer you, and so if you have less than 10% down, seller financing is allowed, but you cannot be required to start those payments until after your SBA loan amount is paid in full.
This is similar to other supplemental financing types. Typically your SBA loan must take priority and you must be careful that loans, credit cards, and other items do not dramatically impact your debt-to-income ratio (DTI). This can prevent you from getting a loan.
But don’t worry. There are options, and your trusted route advisor can help you navigate them.
Now is the Time
The eCommerce and deliver industry is booming, and more profitable than ever. Now is a great time to purchase a FedEx Ground Route. Interest rates are lower than they have been in years, and as routes expand and the number of deliveries increase, there will be new opportunities for new route owners.
Are you ready to purchase a FedEx Ground Route? Do you need help finding the right route for you? Contact us today at Route Advisors. We can help guide you through the process from vetting the route and the seller to financing and closing the deal on a new route and an exciting opportunity in a growing field.