One of the most common questions people have when they want to purchase a FedEx Route, or any business for that matter, is “How will I pay for it?” Since most people don’t simply have enough cash lying around, the answer is to finance your purchase through a loan.
But buying a FedEx Route is not like buying another type of business, and it often involves buying a truck or trucks and making sure you have enough cash on hand to cover expenses for the first several months. There are a few types of loans you can get.
Small Business Association (SBA) Loans for FedEx Routes
An SBA or Small Business Administration Loan is the very best type of loan you can use to purchase your FedEx route if you can get one. The key is that you need to have good personal credit (or business credit if you have owned a business before), and you will need to find a bank with experience issuing loans on FedEx Routes or similar businesses.
The big advantage to an SBA loan is that they offer longer terms and lower monthly payments than other types of loans. The key to remember is that the loan does not come from the SBA, rather they set certain guidelines and terms for lenders to follow. In return, the SBA secures the loan, or guarantees a percentage of the loan, reducing the risk to the lender.
The most common SBA loan is known as a 7(a), and to be eligible, you need to meet certain requirements:
- Operate for profit
- Be considered a small business, as defined by the SBA
- Be engaged in, or propose to do business in, the United States or its possessions
- Have reasonable invested equity
- Use alternative financial resources, including personal assets, before seeking financial assistance
- Be able to demonstrate a need for a loan
- Use the funds for a sound business purpose
- Not be delinquent on any existing debt obligations to the U.S. government
You’ll have to find a lender who has worked with your type of loan and business before, and they will help you walk through the application process. It can be cumbersome, so be prepared for this type of loan to take some time.
The only other disadvantage to SBA loans is that because they require fewer liquid assets and often are not secured by property, there can be larger fees involved, which means that while the term and payments may be good, you may pay more for your loan in the long run.
Whether this is right for you or not depends on your personal financial situation, but your local SBA chapter can often help you decide.
Conventional Loans for FedEx Routes
A conventional loan is another way to purchase a FedEx route, and it can actually be easier to get this type of loan over an SBA loan, especially if you already have a good relationship with your bank for a mortgage, car loan, or other loans. If you have good credit and good repayment history, this may be a good option for you.
There are some caveats though. You will usually need some money down, 20-25% of the loan amount. It can be hard to get a conventional loan without that. Second, usually conventional loans have shorter terms than SBA loans, so your payments are higher, even though fees and interest rates may be lower. This puts pressure on you and your FedEx. route to perform and profit quickly.
Third, sometimes a conventional loan will require something as collateral. If you use the equity in your home or another personal asset to secure it, you are putting that asset at risk if your route struggles to make money at first.
Other Loan Types for FedEx Routes
There are always loan options out there but beware of many of the drawbacks. For instance, you could borrow money from friends and family who want to invest in your business. However, this can result in bad feelings if you struggle to make payments, and you should have a contract with them just like you would for any other loan.
There are also alternative lenders who offer business loans you could use to purchase a FedEx route, but always be sure to check the terms like the interest rate, payments, and penalties for non-payment. These can make it difficult for your business to show a profit, at least at first, and that puts additional pressure on you.
Remember, purchasing a FedEx route and embarking on a new business will be stressful enough. Your loan or other forms of financing should not add to that pressure. Before you decide to purchase a FedEx route and decide how you will finance it, look at your personal finances and your current situation. Know that you have options out there, and it all comes down to identifying the right opportunities. This might mean biding your time, saving money for a while, and making sure your finances line up with your dreams.
Ready to purchase a FedEx Route, or just have questions about financing or other concerns? Contact us at Route Advisors. We’re happy to start a conversation and help you find the right route for you.