Best Loan Options for Taxi Businesses
Whether you run a local dispatch or a high-end limousine service, you may find you need to get a small business loan for your taxi business. It takes a lot of capital to keep up with the big competitors, so the time might come when you need an influx of cash to compete with the different options out there. You might also need capital to pivot toward one of the most profitable business models: the sharing economy.
Luckily, there are a lot of loan options for taxi businesses, and you can choose the type of loan you apply for based on your needs for capital. Of course, there are a few steps in between.
We’ll go over how to get a loan for a taxi business, as well as how to evaluate your finances so you can choose the right business financing option for you. We’ll also explain what documentation to prepare when you’re ready to apply for a business loan.
Getting a Loan for a Taxi Business: An Overview in 4 Steps
Obtaining a business loan can be daunting, especially if you’ve already appealed to your local bank and haven’t had success. You’ll be pleased to find out that applying for a loan for a taxi business actually isn’t hard—but, as with any journey, having directions to your destination makes for a smoother ride. The more prepared you are, the more likely you are to get approved for a loan that matches your needs.
Here are the four main steps to get a loan for a taxi business, which we’ll go into further detail below:
1. Understand your own finances.
Before you apply for anything, you’ll need to get a sense of your business finances. Knowing your numbers is key to understanding not only how much money to ask for, but also how you’ll present to a lender who will ultimately make the decision whether or not to approve your application.
2. Know your credit score.
Your credit score is a big deal, since this number is essentially an objective history of how well you handle debt. Lenders will be very interested in this number, what goes into it, and how it’s moved around when deciding whether to give you a loan, and what the terms around it will be.
3. Review the different loan types for taxi businesses.
Depending on the kind of capital you need, you’ll want to pursue certain taxi business loans over others. Understanding the different types of business loans will help you match with the right solution.
4. Gather your documentation.
Although each loan and lender require different documentation, there are some common things you’ll need for all of them. Preparing your documentation in advance can help your loan application process go as smoothly as possible.
Step 1: Know Your Business Finances
You don’t have to be an accountant or the master of your books to understand some crucial information about your business finances. And knowing these numbers will help you get a sense of how lenders see you—as well as the kind of loans for your taxi business you’re eligible for. This will also help you understand what kind of loans might be most helpful for your specific needs.
Along with how long you’ve been in business, your revenue is a big piece of your financial profile that lenders will take into consideration. You don’t have to be profitable to get a loan, but you should be showing revenue growth. The patterns of your revenue also tell a story, such as whether you have seasonal spikes.
Your cash flow is perhaps the metric that best indicates your company’s financial health. Unsurprisingly, lenders care a lot about this number. Your cash margin is important, too, since it will give lenders a sense of whether or not you’ll be able to both operate your business day to day and have enough left over to pay off your loan.
Your balance sheet reveals your company’s net worth by taking into account a few different pieces of your financial profile. And most importantly for lenders, it gives a sense of your assets versus your liabilities. In other words, it enables lenders to see if your business already has a lot of debt.
Step 2: Get a Sense of Your Credit Profile
Whether or not you realize it, your credit score tells a story. Lots of different, highly particular factors go into the three-digit number that determines your creditworthiness. And based on this number, lenders can get a sense of how well you’ve handled money in the past and then decide if you’re a good candidate to loan money to in the future. Remember, lenders are ultimately interested in being paid back–and your past financial history, as summed up by your credit score, is a good indicator of whether that will happen. Here are the different credit scores you’ll need when applying for a loan for your taxi business.
Personal Credit Score
Your personal credit score often serves as the basis for lenders to evaluate your loan application. Why do they care about your personal credit if this is for your business? Well, as the proprietor of your business, you’re likely to make similar decisions and act in similar ways with your business’s money. It gives lenders a sense of your overall responsibility.
This number pulls in a few different factors, such as your payment history, length of credit history, how much debt you have outstanding, your credit utilization ratio, how often you apply for new lines of credit, and more.
Business Credit Score
If your business has been around for some time, and you have a business credit card or any forms of credit in your business’s name, then you have a business credit score. Similar to a personal credit score, this number gives lenders more information on how well you’ve handled your business’s money.
Many of the same factors go into your business credit score that go into your personal score. But there are a few different elements that make up this number–for example, the risk-level of your industry.
Together, these two numbers will help lenders determine whether your likelihood of paying back a loan. Know your credit scores—this guide can help you monitor your scores—before you evaluate financing types, since certain scores will generally preclude you from applying for certain kinds of loans for your taxi business. And while you’re looking up your score, you should also consider getting a free copy of your credit report, as well.
Step 3: Determine Types of Loans for a Taxi Business
You’ll find many different types of business loans available for taxi businesses. We’ll review four of the most common types of loans for a taxi business that can help you start and grow your company.
Business Line of Credit
Often considered the most flexible type of business loan, a business line of credit could be a good fit for your taxi business. If you’ve ever taken out a cash advance, you have the gist of a business line of credit.
With this loan, you work with a lender, who will approve you for a certain amount of credit, and then you can draw against it (aka take out money) as you need it. You only pay back the amount of credit you’ve used. This is a great loan option for all kinds of instances, like when a car needs an unexpected repair, when you need to bring in more drivers for a particularly busy time, etc.
Need to buy specific equipment for your taxi business—like, say, cars or busses? With equipment financing, you’re able to get a loan for a specific piece of gear for your company. You bring a quote to a lender, who finances the purchase. You then pay back the purchase price at a small premium. Equipment loans can be obtained fairly quickly once you have a quote, so this could be a good match for a rapidly expanding taxi business. They’re also fairly easy to qualify for, since the equipment you purchase with the financing acts as collateral if you stop making payments.
If you need to pay off existing debts, or make a big purchase (such as acquiring a rival company), a business term loan could be the right loan for your taxi business. Term loans generally have repayment periods of three to five years; short-term loans, which are a little more expensive but easier to get approved for, last about a year. If you require pure working capital for which you can purchase nearly anything, a term loan could be a good fit.
It’s also worth noting that if you have a nearly perfect credit score, you can also consider an SBA loan—the top tier of term loans. They’re typically more difficult to qualify for, but offer the lowest down payments and reasonable interest rates.
0% Introductory APR Business Credit Card
You might not think of a business credit card as an effective tool for financing your company, but business credit cards with 0% APR introductory offers specifically can be a useful strategy. These cards offer a finite period where you’ll pay no interest on the purchases you make. If you’re detail-oriented and confident you can pay off your balances before this introductory offer expires, you might consider using a 0% APR card as a financing solution for your business.
Also important to note for those who are currently working to pay off credit card debt on a card or cards with monthly interest rates: Many 0% APR cards allow you to consolidate and transfer your debt onto their card, which lets you to pay down your balance with 0% interest for the duration of the introductory offer. There is typically a balance transfer fee associated with this, but it is often worth it compared to the money you’ll save in interest over the length of your repayment. Again, be sure to note when the introductory offer expires, though, as this is only a beneficial strategy when the interest rate is 0%.
Step 4: Compile Documents for Taxi Business Loans
Once you’ve found the right loan for your taxi business, the next step is to apply for the loan. In order to do this, you first need to get your documents in order. As we stated before, each lender and loan type will have specific required documentation—some more than others. These five documents are pretty universal, however, so preparing them in advance can help keep your loan application process moving along.
- Bank statements: Lenders will want to get a sense of what’s in your coffers, which will give them a sense of your ability to pay back their loan. They’ll generally request to see three to four months’ worth of statements.
- Tax returns: This is standard practice among most lenders. You will generally need to provide tax returns for the last couple of years for both your business and your personal finances.
- Profit & loss: Also called an income statement, a profit and loss statement details your business’s revenue, expenses, and net income. This is key for lenders to understand how you work with money.
- Balance sheet: As we went over, you’ll not only want to know your balance sheet personally, but you’ll need to supply it to a lender, too.
- Business licenses and permits: Lenders want to make sure your company is operating within the law. You’ll need to provide the appropriate identification and business licenses.
Loans for a Taxi Business: The Bottom Line
It can feel overwhelming when you need to find a loan for your taxi business, especially if you’re on a time crunch. Luckily, there are several different types of loan options to choose from, and the process is pretty straightforward. Yes, you’ll need to brush up on your business finances, and do a little loan comparison. But you’ll find that the time is worth it to get the capital you need for your taxi business so your company can continue to grow.