Financing FedEx Routes for Sale: How to Minimize Your Down Payment

buy a fedex route in ca.jpg

Creative finance strategies to get you in the owner’s seat

FedEx Ground routes for sale have a wide range of prices depending on the size of the operation, composition of routes, location, and quality of the vehicles. Our current portfolio of active listings range in price from $200,000 to more than $3 million. Presently, the average route price is approximately $850,000.

The standard minimum down payment for a conventional bank loan is 25%. For an average priced route ($850,000), you would need a down payment around $212,500.

This is a hefty amount of cash on hand. Plus, we recommend holding back approximately $50,000 of additional liquid funds as working capital.

If you are wondering about options to minimize or reduce your down payment requirements, you’re not alone.

What follows are strategies for minimizing your down payment burden when you buy a FedEx Ground route.

First Things First: Consider a Lower Priced Route

Before we hop into more creative strategies, let us first say that starting with a lower priced portfolio of routes might be the right strategy for you. Many FedEx owners use the profits from their businesses to invest in additional routes and scale their businesses.

As you increase the number of routes in your business, you are able to operate more efficiently and more profitably. Starting small does not mean ending small.

We have an entire group of routes priced under $400,000. Search there as a starting point and talk to our team about strategies for scaling an operation.

Research SBA Loan Options

Small Business Association (SBA) government-backed loans often require a lower down payment (ranging from 10 to 20% of the purchase cost). These loans may be easier to secure for individuals with a shorter or complicated credit history. Moreover, SBA loans frequently have amortization schedules up to 10 years in length.

The smaller down payment options plus the longer pay back terms make these loans attractive options for potential route buyers.

However, because of the SBA’s lengthy approval process, some sellers are resistant to buyers using SBA financing. Of course, a strong offer from a prepared buyer may change their mind. In addition, we have many sellers open and willing to accept offers from buyers using SBA loans.

We keep a running list of routes for sale open to SBA financing.

Consider Deals with Seller Financing

Our current portfolio of active listings range in price from $200,000 to more than $3 million. Presently, the average route price is approximately $850,000.

Seller financing involves the route seller loaning you part of the cost of your purchase and you will pay back the seller this portion of the price (usually with interest).

Seller financing counts as paid in capital in the eyes of a lender. Therefore, you can reduce your down payment requirements if you are using both seller and bank financing.

A seller financed deal will look something like this:

Buyer wishes to purchase a route for $850,000 and they have $100,000 cash on hand for the down payment. As we saw above, a buyer would typically need 25% (or $212,500) as the down payment for a route priced at $850,000.

So we have a gap of $112,500 to meet the financing down payment requirements.

Here is an instance where a seller may offer seller financing to get the deal done. If a seller agrees to cover $112,500 of the purchase price under separate seller financing loan terms, this seller financing amount combined with the buyers $100,000 in cash would combine to function together as the down payment.

Buyers work out separate repayment terms with the seller for the $112,500 financing.

We keep a running list of routes for sale with seller financing options. And at times you will find a seller willing to enter into this arrangement even when they did not advertise seller financing as part of their listing.

Assume Vehicle Debt to Reduce Your Burden

The Value of the Fleet (a number you will see in all of our listings and prospectuses) can make a significant difference in some route sales.

First, FedEx Ground routes come with assets (P&D and linehaul trucks) that the banks view as collateral. Significant assets may convince the bank to reduce the down payment requirements for a buyer because there are physical assets they can seize in the event of a default.

Alternatively, buyers may learn that their business of interest has outstanding vehicle debt. In some deals, buyers with good credit may choose to assume existing vehicle debt as an alternative financing strategy.

For example, if a route listed at $850,000 has $250,000 in outstanding vehicle debt, a buyer could take on that debt and lower the overall route price to $600,000. This strategy would lower the buyer’s 25% down payment from $212,500 to $150,000.

What’s Next?

In addition to these strategies, our team can recommend a number of unique approaches to closing the gap based on your current situation and operation of interest.

We can’t emphasize enough how much difference a good route broker can make in the purchase process. Our team sees hundreds of offers per year and understand what it takes to get a deal from offer to closing.