Your Questions about SBA Loans Answered

One of the things we get asked about most often is how to pay for the purchase of a FedEx route. There are a lot of options, and we have outlined some of them here, but one of the most common is taking out SBA loans.

The SBA loan process can seem complicated at first, and you may have a lot of questions about that process. Here are some of the most common questions, and some practical answers to help you understand it better.

Q: How much can I qualify for with a Small Business Administration (SBA) loan?

A: This will depend on whether you are purchasing an existing route, an expansion route, or a new route FedEx has created. Most SBA 7(a) and 504 loans have a maximum loan amount of $5 million, but that is more than you will need for any FedEx route.

However, Keep in mind, most banks will want to be sure you still have significant cash reserves (3-6 months expenses) left over after your personal investment into the business. This is something to consider when determining how much money you will put down. There are some minimum requirements, though.

Q: How much will I have to put down?

The minimum amount you will need to put down is 10%. However, understand this is a floor, and not a ceiling. Individual banks will make their own determination of how much you need to put down to get a loan based on their own evaluation of your business, your credit score, and other factors.

The SBA requires 10% minimum, and as we stated, you will need to have some cash reserves for expenses beyond your down payment. But your lender may require more down, or you may want to add to your down payment to lower your overall payment.

 Q: How long will it take to get an answer and funding?

Usually for most existing routes, it will take around 90 days to get an answer from your lender and get your loan funded. This can vary however and may take 120 days or even a little longer. This also depends on your ability to get the needed documents to the lender and the SBA. The more prepared you are, the faster your loan process will go.

If you have a FedEx Route broker you are working with, they can help you make sure you are prepared for the process before you decide on what route you are purchasing and what lender you will go with.

Q: Why do I need collateral for an SBA Loan?

The SBA backing for your loan reduces the risk to the lender, but the SBA also requires them to evaluate the loan as if there was no government backing involved. So you may be required to secure your business loan somehow. Many purchasers use their home equity or other personal assets like real estate holdings or other common forms of collateral to satisfy this requirement.

Q: Can I use my retirement funds for a down payment?

Most of the time, the answer is yes. Most of the time your 401K will have a Rollover for Business (ROBS) Startup option. However, even if you don’t want to use this option, you can take a disbursement from your retirement account or even take out a 401K loan.

The key is to remember to factor in any taxes or loan repayment terms in those cases. If you can do an ROBS, that is the very best option. Just be sure your lender understands how these options work, and how they can work best for your particular situation.

Q: What is the minimum credit score to get an SBA loan?

The minimum required credit score is 640, but most lenders will want to see a score of 690 or higher, depending on circumstances. As rates and loan policies change, the desired number may vary up or down. It is important to remember that while the SBA has minimum requirements, each lender will do their own loan evaluation and will have their own requirements.

The key is to find a lender that will work well for your situation.

Q: Do I need a business plan to get SBA loans?

Yes. First, you should never operate any business, even a FedEx route, without a written business plan. And a business plan is required by the SBA, and some lenders will require a more specific and detailed plan than others.

This is a good thing. A business plan will help you understand cashflow, where your money should be going, and what to do in a variety of business situations and circumstances. Crafting a good business plan is a key to your success as a FedEx route owner and operator.

Q: Should I get an SBA loan to finance my FedEx Route Purchase?

The quickest answer to this question is, “It depends.” You should ask yourself a few questions first:

  • Do I have enough savings to cover expenses for a reasonable amount of time and to take care of emergencies?
  • Will the loan payments still enable me to make my FedEx route profitable?
  • Do I have another affordable way to finance this purchase (A home equity line of credit, friends and family, a ROBS from my 401K)?
  • Are my personal finances in order? What is my credit score? How will that impact my loan terms and interest rates?

Keep in mind that any loan can eat into profit margins, but it can also help you preserve some of your own cash for emergency funds and operating costs until you have your route or routes up and running efficiently.

Have questions about purchasing a FedEx route? Need help navigating the SBA loan process, or are you not sure where to get started? Contact us at Route Advisors today. We’d love to get you started on the path to route ownership.

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