Taxi Business Financing 101: Buying Cars, Licenses, and Covering Operating Costs

The taxi industry has long been a vital part of the transportation ecosystem, especially in cities where public transit options are limited or unreliable. Launching or new taxi operation (or expanding an existing one) requires significant capital, though, between purchasing vehicles, obtaining licenses, and covering day-to-day expenses like fuel or maintenance. To cover those steep upfront and ongoing costs, many small business owners will find themselves turning to various taxi business financing options.

Whether you're a single driver looking to grow your business or a fleet owner scaling operations, here's a look at how to get a loan for your business and the many options available for your taxi business needs.

Taxi Business Start-Up Costs

There are many expenses to keep in mind when starting up a new taxi business. Depending on your business goals and structure, this can include the cost of:

• Purchasing or leasing vehicles
• Taxi medallions (transferrable permits that allow taxis to operate in a specific area)
• Local business licenses and permits
• Insurance
• Business branding
• Dispatch equipment setup
• Payment processing technology
• Fuel
• Vehicle maintenance and cleaning

Plus, you should maintain a working capital buffer for both planned and unexpected expenses.

If you're a new business owner, taking out a taxi loan can help you cover at least some of these costs and even give you a cash safety net while you get up and running.

Financing Licenses, Medallions, and Permits

The cost of your company's licensing and permits — and particularly medallions, where required — should be a key aspect of your taxi business financing plan. That's because these medallions, also known as a Certificate of Public Necessity and Convenience (CPNC), can easily cost tens or hundreds of thousands of dollars.

Medallions are common in large cities like New York, Boston, Chicago, and Philadelphia. These medallions are issued to public transportation companies like taxi companies and can be affixed to licensed vehicles to show that they are permitted to operate in that city. They are also transferable; since cities tend to process and issue new medallions at a slower rate than the demand for new taxi services, they tend to hold their value over time or even grow. Many taxi companies purchase medallions from other taxi companies rather than wait for new applications to be processed.

Medallions are intangible assets, so while they come with a high price tag, it may be challenging to get funding for one. Instead, you may want to pull from available working capital, utilize a personal loan, tap into a business line of credit, or use other non-traditional sources of taxi business financing to cover this type of purchase.

Overview of Taxi Business Financing Options

Depending on your credit history and funding needs, here are some of the places you can look for taxi business financing.

Traditional Bank Loans

Business loans offer taxi business financing from traditional providers, like banks and credit unions. These can be a good choice for established taxi service operators with a strong financial history, but new business owners with a good credit score can also qualify. These loans may be able to get approved and funded in just a few business days in some cases, though you may be limited in how much you can borrow depending on your personal and business eligibility.

SBA Loans

If you don't mind a lengthier application process, a loan backed by the Small Business Administration (SBA) can be a great option for your taxi business financing needs. It may take a few weeks or even months to get SBA loans approved, so just make sure to figure that into your timeline.

SBA loans are offered through approved lenders, but typically have lower interest rates because they are government-backed. You may also have extended repayment terms that allow for a lower monthly payment. You can borrow up to $5 million with an SBA 7(a) loan, though microloans are also available for as much as $50,000.

Equipment and Vehicle Financing

If you're buying cars, computers, or other high-cost equipment, taxi business financing through an equipment loan or vehicle financing may be the answer. These loans are generally secured by collateral, namely the asset the funds are being used to purchase.

You'll find that your options for secured taxi business financing will vary depending on the type of equipment you're buying, how much you need to borrow, and whether you're buying new or used. For instance, new vehicles may have lower interest rates and down payment requirements than used vehicles.

You can also opt to lease vehicles for your taxi business. Financing business vehicles with a lease is a bit different than buying and often has more stringent rules regarding mileage, so be sure to read your leasing documents very carefully.

Alternative and Online Lenders

Online lenders may also be a good solution for taxi business financing. These online institutions often have lower overheads and, in turn, can offer lower interest rates than brick and mortar lenders. They can often process applications and fund loans faster, too, though this will vary depending on the lender, how much you want to borrow, and your eligibility.

Working Capital Loans

Unlike a secured equipment loan or SBA loan, a working capital loan is designed to provide you with the cash necessary to cover everyday expenses, unexpected costs, or repairs. It can also provide you with the funding necessary to make it through a slow season or lull in business, when you still need to keep the lights on and make payroll.

Working capital loans are often short-term loans or business lines of credit. These put you in touch with quicker funds than a full business loan, often with less stringent eligibility requirements. However, they usually have a lower borrowing limit than other traditional forms of taxi business financing.

Tips for Getting Approved for Taxi Business Financing

Whether you're looking to take out a $2 million loan to start a new taxi business or are just considering your options for car financing for taxi drivers, prepping for the application process can make everything run faster and smoother.

Prep your credit

Before you ever submit an application, do your best to build and maintain good credit. This means making all monthly payments on time, as agreed. You should also limit the balances carried on revolving lines of credit like credit cards or lines of credit. A healthy credit mix is imperative, but you don't want to apply for any significant debt or open too many new accounts right before you begin shopping for taxi business financing.

Your personal credit may also come into play, especially if you have a newer business or can't qualify on your business credit history alone. So, be sure that your credit is healthy, both personally and professionally.

Make a plan

Many business lenders will want to see a business plan before approving a business loan, especially for a new or growing business. SBA loans are particularly notorious for this, and a strong business plan can make or break your application for funds.

Gather your documents

Most lenders will request some combination of financial documents to support your taxi business financing request. Depending on the lender you choose, the type of loan you're requesting, and your loan amount, the documentation required may vary.

To be safe, gather recent income and profit & loss statements (P&Ls). You should also have the last few years' worth of tax returns handy and multiple recent business bank statements.

Show vehicle details

Whether you're financing a vehicle, refinancing vehicles, or using existing cars as collateral, a lender may want to see details on the asset(s). When requesting car financing for taxi drivers, expect to at least provide information about the cars' value, vehicle history reports, and maintenance records.

Be realistic

There's nothing wrong with having big business dreams, but it's important to also choose realistic goals and financial products. This means choosing financing for taxi drivers that fits your business plan, and picking a loan amount with repayment terms that you can actually afford.

Final Thoughts

Starting or expanding a taxi business is no small endeavor, and getting your hands on the right funding can mean the difference between a dream and success. Buying vehicles, obtaining licensing, hiring drivers, and covering ongoing costs are all part of taxi business expenses that you should keep in mind as you create a business plan and begin shopping for funding. The right type of taxi business financing depends on your credit, current stage of your business, and even your existing cash flow. Be sure to explore multiple funding options and speak with a lender or financial advisor if you're not sure what you can afford or what you need to get started.

FAQs on Taxi Business Financing

What is an ideal type of loan for starting a taxi business?

An ideal loan for your taxi business depends on your specific needs and financial situation. For example, SBA loans are great for low interest rates and long terms but often have stricter eligibility requirements and a long approval window. Equipment loans are good for purchasing vehicles, and working capital loans may be better for daily expenses.

Can I get taxi business financing with bad credit?

Some online and alternative lenders offer taxi business loans to business owners with limited or even poor credit. However, expect that interest rates and fees may be higher, and you may be limited in how much you're able to borrow. Offering collateral or applying with a creditworthy co-signer can improve your chances of approval.

How much money do I need to start a taxi business?

Taxi business startup costs can run the gamut, ranging from a few thousand dollars to multiple millions depending on your location, the number of vehicles you want to purchase, whether medallions are required in your city, and other overhead expenses. Taxi business financing can help cover many of these expenses, though you'll first need to meet lender requirements to get access to those funds.

Is it better to lease or buy a taxi vehicle with financing?

Buying a taxi gives you the flexibility of vehicle ownership with fewer restrictions, particularly when it comes to mileage and maintenance. Leasing may have lower upfront costs, but usually includes mileage limits and stricter terms, plus you won't build any equity in the vehicle(s). The right option for you depends on your expected vehicle usage, long-term business goals, and what you can afford.

Can I finance a taxi medallion?

Taxi medallions can cost tens of thousands of dollars and have even reached resale costs in the millions in recent years. You can finance these costs if one is required in your city, but it may be more difficult than financing other business expenses. That's because medallions are intangible assets, and not all lenders will allow that level of funding without collateral. Instead, consider using funds from a business line of credit, personal loan, or working capital loan.

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