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Taxi Business Loans & Financing Options

By Spodek Law Group | February 20, 2024

Taxi Business Loans & Financing Options

Starting or expanding a taxi business requires significant upfront capital, but financing is available for those with solid business plans. There are several options taxi business owners can consider when looking for funding, each with their own pros and cons.

SBA Loans

The Small Business Administration (SBA) guarantees loans made by banks and other lenders to small businesses that meet certain qualifications. SBA-backed financing tends to have lower interest rates and longer repayment terms compared to other types of small business loans.

To qualify for an SBA loan, taxi companies typically need to have less than $15 million in net worth and meet the SBA’s size standards for the transit and ground transportation industry. The SBA offers several loan programs tailored to different business needs:

  • 7(a) Loans: The SBA’s primary and most flexible loan program with loan amounts up to $5 million and interest rates from 6-8%. Can be used for working capital, equipment, or commercial real estate.
  • 504 Loans: For major fixed assets like real estate or heavy equipment. 504 loans offer low down payments and interest rates.
  • Microloans: Small (up to $50,000) short-term loans with less paperwork and faster turnaround. Helpful for working capital.
  • Disaster Loans: Low interest loans to repair or replace property damaged in a natural disaster.

To apply, taxi businesses will submit loan packages to SBA approved lenders like banks or credit unions. The SBA will guarantee 50-90% of the loan amount to the lender.

Business Credit Cards & Lines of Credit

Business credit cards and lines of credit from major issuers like American Express or Capital One are an option for smaller financing needs up to $100K. Compared to term loans, revolving credit lines tend to offer higher limits and quicker, easier online applications.

Ideal for flexible ongoing working capital and unexpected cash flow crunches. Interest rates are usually variable and higher than SBA loan rates. Credit score and personal guarantees are required.

Equipment Financing

As an asset-intensive business, taxis have significant equipment costs for purchasing and maintaining vehicles. Specialized lenders offer financing programs just for transportation equipment.

Options like taxi medallion loans, vehicle leases, fleet financing, and service/parts financing can have very competitive rates and terms tailored to the taxi industry.

Alternative Online Lenders

In recent years online alternative lending platforms like Kabbage, OnDeck, and Fundbox have emerged to offer fast small business financing. They provide term loans and lines of credit from $5K up to $250K+ with minimal paperwork and loan decisions in as fast as one business day.

Rates are higher than traditional SBA loans – ranging from 7% to 60%+ APR. But the quick access to funds can be invaluable for seizing opportunities and managing cash crunches.

Rollovers as Business Startups (ROBS)

A ROBS plan allows aspiring business owners to tap into their existing 401(k) or IRA savings to fund a new venture with no tax penalty. While controversial, it can be one of the only sources of substantial startup capital for some entrepreneurs.

With a ROBS, an entrepreneur first forms a C corporation that creates a 401(k) plan. Then their retirement account rolls tax-free funds over into the company 401(k), which in turn purchases the stock of the new business.

Strict rules must be followed to avoid penalties. ROBS work best for high cost enterprises like manufacturing, real estate, and transportation. Professional guidance from firms like Benetrends is strongly recommended.

Friends & Family Support

Seeking personal loans from friends, family, and existing business partners is common with early stage ventures. While terms are custom, interest rates are typically low or zero. The lender bases decisions on personal relationships and belief in the founder rather than business metrics.

Approaching close contacts for capital has social risks so clear repayment terms should be established. But for many entrepreneurs this source represents the initial seed funding to build out concepts and apply for larger outside financing.

Angel Investors & Venture Capital

Wealthy individuals known as angel investors and venture capital firms target early stage, high growth startups as an asset class. More than $30 billion was invested in seed or Series A rounds in 2020 according to Pitchbook.

In exchange for capital investments, angels and VCs take equity shares in the companies they fund. Taxi startups can pitch these backers on large potential markets and the innovative technologies or business models they are introducing.

Several travel tech venture firms like Autotech Ventures specifically focus on ground transportation. But landing backing is extremely competitive – less than 1% of startups receive VC or angel money.

Initial Coin Offerings (ICOs)

Blockchain-based startups have a new decentralized financing option called an Initial Coin Offering or ICO. Similar to an IPO, it sells cryptographic tokens to investors that represent ownership stake in their project.

Several taxi industry ICOs have had successful raises over $10M. But extreme volatility in crypto valuations along with increasing regulatory scrutiny have dampened the ICO craze.

Choosing the Best Taxi Business Funding

With the variety of financing alternatives to weigh, narrow down options by considering factors like:

  • Cost of capital – compare rates and fees across different funding sources. Cheaper is not necessarily better.
  • Loan amount – ensure there is enough capital to fully execute business plans.
  • Collateral requirements – use available assets to secure better terms if possible.
  • Time to funding – identify the fastest options for urgent capital needs.
  • Repayment schedule – match to expected cash flows and growth cycle.

Ideally taxi companies have access to diverse financing channels throughout all stages of growth. Layering various forms of debt and equity capital is common. Be prepared to overcommunicate business details and projections to all potential investors and lenders.

Taxi Financing Tips

  • Improve credit rating – scores above 680 unlock affordable financing options
  • Showcase existing assets – use property, vehicles, or equipment as collateral
  • Detail growth drivers – quantify market opportunity, competitive advantage
  • Build relationships with multiple lenders and funding sources over time
  • Have mentors review pitch decks and business models before applying

Starting or expanding a transportation business takes significant capital resources. But various financing options are available for those able to communicate the strengths of their team and taxi concepts. Savvy entrepreneurs mix and match funding sources over time to create runway and flexibility as they build.

Resources

I hope this overview on taxi business loans and financing was helpful. Let me know if you have any other questions!

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