How to Raise Capital and Fund the Purchase of FedEx Ground Businesses

Before you pursue buying a business, it is critical to make sure you have the necessary funds. FedEx Ground businesses range in price depending on the number of routes, demand, profitability, and the health of the fleet. On average, you can expect most businesses to range somewhere between $500,000 and $1,500,000. Some can be less, and some can cost much more. Knowing how to raise capital to fund FedEx Ground operations is key to growing and being successful in this space.

Leveraging a FedEx Ground operation and taking on debt to fund it, is common. Roughly 75% of all FedEx Ground transactions are financed, while 25% are done with cash or creative financing. Most buyers utilize some form of bank financing to purchase FedEx Ground routes. However, even if you plan to get a loan to cover the entire cost of the business you will still need to provide a downpayment and have cash on hand for working capital. It’s worth mentioning here that the size of the loan you can qualify for will be entirely unique to you. Current interest rates and any macroeconomic factors can also affect your borrowing power. All of these factors will affect how much capital you need to have on hand to get the deal done.

So, where do your funds come from?

Sources of Capital 

“Knowing how to raise capital to fund FedEx Ground operations is key to growing and being successful in this space. ”

There are various sources of funds you can pull from. It’s up to you to decide what works best for you and your financial goals.

1) Cash

As the saying goes, cash is king. If you have the financial ability and desire to pay for the business entirely in cash, you are more than welcome to do so, but this will not be feasible for most buyers. However, keep in mind that even if you are planning on financing the full price you will still need some amount of cash to inject into the business. When looking to purchase a business, evaluate how much liquid cash you have available in the bank that you could comfortably put towards a business loan.

2) Cash + Financing

While you will need some amount of cash for a downpayment, you can use financing to source the remaining funds for the purchase. How much debt you put on the business is entirely up to you and your personal financial needs. The more debt you have on the business, the greater the portion of your net profits that will go towards paying off that debt.

Finding the right balance between healthy debt and available cash for capital expenditures and personal income is something that Route Consultant specializes in. We work with each of our buyers individually to identify what their financial needs and goals are, and then we identify the right businesses and debt structures to meet those goals. 

You will need to decide if you want to use conventional financing with a local bank or a 7a loan from the SBA, whether or not you want to include seller financing or other creative structures, and how much those loan amounts need to be. Seller financing, for example, can be a great way to reduce the amount of cash needed upfront. All of these various factors can change what your initial cash contribution is and what your monthly cash flow can look like. 

3) Other Businesses + Assets

Some buyers have other businesses and assets that can be a good source of funds. Maybe you’re looking to downsize or sell your old business outright and buy a new one. Maybe you have some valuable assets that you are willing to liquidate to generate the cash you need for the investment. Whatever your goal is, consider the timeline you need to liquidate those assets and where those funds will come from.

4) ROBS 401k

Another fairly common funding source we see is called a “Rollover as Business Start-Up” or ROBS. This is a unique funding source in which you use your 401k retirement funds to purchase a business. If you do choose to go the ROBS route, you will have to format your business as a C-Corporation. This could affect your financial goals and will have different tax implications than an S-Corporation. We highly recommend you speak to a CPA or tax attorney to decide if this is a good option for you. If you know that you definitely want to set up an S-Corporation for your business, then you will not be able to use a ROBS to fund the acquisition.

5) Liquidity Events (Carve-Outs)

Your first acquisition can be the most difficult since you must source your down payment from your personal finances or other assets. Once you are in the FedEx Ground space as a contractor, you can benefit from the growth and equity appreciation of these businesses. As your business grows you can initiate liquidity events, selling off portions of your operation to pay off current debt or fund additional acquisition loans. That is how we built the majority of our operations across multiple states. At an estimated growth rate of 20-30% a year, you can break off a portion of your business every few years and put that money in your pocket or use those funds as a down payment on another operation in a nearby terminal.

Ready to Buy a Business?

Regardless of your funding path, any broker you work with, including Route Consultant, will require proof of funds at the beginning of the acquisition process. This can be as simple as a screenshot of a bank account or other fund source and should not be an impactful burden on you, the buyer. This is to ensure you have the minimum funds necessary to proceed with the deal. Proof of funds is an essential step to protect both parties from wasting time or creating unnecessary heartache later down the road.

After determining what your funds budget is and which financial options you want to pursue to purchase FedEx Ground routes, we can help you decide what operation best fits your financial needs and goals. Our goal here at Route Consultant is to help you find the right business and make the best investment decision for you and your needs. If you are unsure what purchase method or debt structure is right for you, no worries! We will work with you to determine what your best options are.

Want to Learn More?

Dive into the world of logistics and delivery routes with our complimentary FedEx Ground Routes 101 E-Course. This course will teach you the fundamentals of delivery routes so that you can decide if this is an industry worth pursuing further. Whether you’re interested in FedEx Ground routes, Amazon routes, Bread routes, or other logistics operations, we are here to help. Enroll now for free and take the first step towards entrepreneurship in the e-commerce space.