Loan Options for Buying FedEx Routes

Loan Options for Buying FedEx Routes

Business loans are an integral part of buying FedEx linehaul businesses, allowing you to buy larger businesses, increase your ROI, and benefit from depreciation. Choosing the right type of financing can impact your cash flow, long-term equity, and borrowing capacity. There are typically three common loan types: conventional loans, Small Business Administration (SBA) loans, and interest-only loans. Each structure carries unique advantages and trade-offs for your business.

Loan Structure Comparison

Loan Type	Typical Term	Loan-to-Value Ratio	Interest Rate (Estimated)	Personal Guarantee Required	Principal Paydown	Best For	Key Drawbacks
Conventional Loan	5 years	80%	Approximately 8% (SOFR + 2.5%)	Yes	Yes	Equipment or property purchases	Shorter term, stricter underwriting
SBA Loan (7(a) or 504)	10 years	85%	Prime Rate + ~2%	Yes	Yes	Long-term growth and working capital	High fees, longer closing timeline
Interest-Only Loan	1 year	Varies	15%–20%	Not always	No	Short-term liquidity or bridge financing	High cost, no equity or principal build

Conventional Loans

Conventional loans are typically used to finance tangible assets like Class 8 trucks, buildings, or other capital investments. With terms around five years, interest rates near 8 percent, and loan-to-value ratios capped at 80 percent, these loans require strong borrower financials and personal guarantees. Payments include both principal and interest, which helps reduce your outstanding balance and builds equity over time. However, the relatively short amortization schedule results in higher monthly obligations.

Small Business Administration Loans

SBA loans are government-backed products that offer longer repayment terms—typically up to ten years—and slightly more favorable loan-to-value ratios (up to 85 percent). Interest rates are usually tied to the Prime Rate plus a 2 percent spread. These loans often appeal to contractors seeking to preserve cash flow while financing both equipment and working capital. They also require personal guarantees and carry higher upfront fees, along with a longer and more complex underwriting process.

Interest-Only Loans

Interest-only loans are short-term solutions designed for speed and flexibility. Although the interest rate is significantly higher—typically between 15 and 20 percent—the monthly payment can actually be lower because it does not include any principal reduction. This structure can be especially useful if you expect to refinance at a lower rate within a year or plan to sell the asset or business before the loan matures. In many cases, these loans do not require a personal guarantee, making them attractive for short-term projects or situations where limiting liability is a priority. That said, because the principal remains untouched, the entire balance must be repaid at the end of the term.

Conclusion

Choosing the right loan structure involves more than just comparing interest rates. It requires a clear understanding of your repayment timeline, cash flow needs, and long-term business strategy. Conventional and SBA loans offer structured amortization and support equity growth. Interest-only loans provide temporary relief and flexibility—but come at a premium and require an exit strategy.

If you are evaluating your financing options, consider both your immediate needs and future plans. The right loan can fuel sustainable growth. The wrong one can strain cash flow or limit opportunities. Make your decision with full visibility, and align it with where your business is going—not just where it is today.