A Guide to Financing Your FedEx Delivery Route
If you’ve decided that investing in a FedEx delivery route is a sound option for your career and lifestyle, congratulations! You may have just made the most important financial decision of your life. However, there is still a lot of work to be done before you can begin profiting from this business model. For starters, you may need to secure financing for the routes.
Understanding FedEx Delivery Routes
While most people are quite familiar with the FedEx trucks they see whizzing around town, very few realize what the business model looks like. Unbeknownst to most, FedEx ground actually allows contractors to buy and sell routes as they wish, so long as the purchaser qualifies per FedEx’s approval process.
As a FedEx route owner, you’re responsible for owning and/or leasing vehicles, hiring & firing employees, managing employer responsibilities, and handling all pickups and deliveries within your geographic footprint.
The beauty of this business model is that owners can operate under the brand name of FedEx while maintaining the freedom and flexibility that comes with being an independent contractor. The more routes you own, the more money you can make.
Why Banks Hate FedEx Loans
However, despite the typically lucrative nature of FedEx routes, you may find that it can be challenging to invest in FedEx routes if you don’t pay in cash. That’s because banks, quite frankly, are often reluctant to loan on FedEx routes due to their lack of physical collateral.
Does this mean that FedEx routes should be considered a high-risk investment? A purchase of any operating business will come with its own risks and rewards – and FedEx routes are no exception. From the bank’s perspective, while you may own the route, your list of physical assets may fall short in qualifying for a traditional bank loan. Other than a couple of trucks and a FedEx contract, there is little else the bank can collateralize the loan with.
Without an associated building, product inventory, or intellectual property, the question of valuation becomes a bit more ambiguous. What’s more, FedEx doesn’t get involved in placing value on their routes. Instead, business appraisers and specialized brokers of routes help arrive at a market value.
In short, this boils down to one simple fact from the bank’s perspective: If you default on your loan, how do we recoup our investment? Because the route sale/transfer process is dictated and approved by FedEx, the bank has no real assurance that they could take possession of the route(s) in the event of default. After all, FedEx has no obligation to reassign the routes to the bank simply because their client defaulted on a loan.
Looking at Your Other Options
So, if you can’t pay cash and a bank won’t lend you the money required to purchase a route, what do you do? In short, you’ll have to look for alternative methods of funding. This can take time and patience, but hopefully you’ll eventually find an option that makes sense. As a starting point, you may consider the following options:
1. Home Equity Line of Credit
If you have a solid amount of equity in your home, you may be able to use your home equity as collateral to secure sufficient funds for the route purchase. This strategy essentially uses your property as collateral for the loan and grants the lender the freedom to foreclose on your house should you default on your loan.
2. Private Lenders
While a bank may not be willing to fund your investment, private lenders have more flexibility to choose when to approve or deny financing to a small business owner. They aren’t mandated by corporate bylaws, so this frees them up to act independently. Our firm has a network of independent lenders nationwide who specialize in financing FedEx routes. Clients of KR Capital gain access to our proprietary network of lenders, allowing us to open doors to more buyers, and fund transactions quickly.
3. Accessing Your Retirement Account
There are several firms which specialize in helping individuals access their retirement funds for purposes of buying a business. As you might imagine, the formation of retirement accounts requires compliance with numerous Federal regulations and tax codes. Because these rules are often difficult to navigate, several firms have cropped up out of the necessity; giving clients a clear path toward accessing retirement money to purchase a business.
KR Capital: Premier Broker of FedEx Routes
For thousands of small business owners across the country, the decision to buy or sell a FedEx delivery route has been the best financial decision of their lives. Of the 7,500 independent business owners FedEx works with, more than 3,000 earn $500,000+ in annual revenue. An impressive 1,000+ contractors earn more than $1 million.
If you’re looking for a business opportunity that’s flexible, profitable, and enjoyable, then you should consider the purchase of a FedEx delivery route. While financing can be a challenge, you shouldn’t let it prevent you from pursuing such a profitable investment.
At KR Capital, we’re the nation’s premier broker of FedEx routes. We’ve sold more than 600 routes in the past few years and would welcome the opportunity to help you find your own. Whether it’s one route or 20 routes, we can point you in the right direction and ensure you’re paying the right amount. For additional information, please feel free to contact us today!