How to Start a Repo Business

Last Updated on

Quick Reference

With more and more consumers taking out loans to finance purchases like vehicles and even furniture, some of those borrowers will ultimately default on their loans. In these situations, the lien holder will need to hire a repo business to repossess the item. Starting a repo business puts you in charge of your career and your financial future. With your income being linked to the number of successful repossessions you make, this can be a financially rewarding opportunity if you’re dedicated, resourceful, and driven to succeed.

Business Overview

Repossession businesses find and retrieve items and assets for lienholders after the borrower has fallen behind on the item’s loan. These businesses contract with the lien holders and are tasked with repossessing the items to be sold at auction, and the lien holder can recover at least some of their investment. Sometimes repo businesses earn a certain fee per repossession, though those fees may also vary depending on the value of the item that’s repossessed. Finding these items can be difficult, especially if the borrower has moved or left town, so a repo business may need to do some investigative work, too.

Repo businesses often specialize in a certain type of repo work. Vehicles, furniture, boats, motorcycles, electronics, and even airplanes are all frequently financed, so there’s a high degree of demand for repo agents willing to retrieve these types of items.

Industry Summary

According to IBIS World, the repossession services industry experienced a 4.2% growth from 2015 to 2020. That growth was due to the improving economy, which resulted in higher demand and greater industry profits. That growth is expected to continue steadily through 2025 with continued improvements to the economy. It’s likely that consumers will continue spending and finance purchases, and creditors will offer to finance higher-risk borrowers. This has the potential to increase loan delinquencies, driving the need for repossession services.

As of 2020, the repossession industry was a $1 billion market. A total of 9,268 businesses employ 15,577 staff.

Industry Trends

Many trends continue to shape the repossession industry. According to Partners in Asset Recovery’s Repo Report, customers who are financing purchases are changing. Currently, 15.5 million workers in the United States have alternative arrangements for their employment, and an increasing number of workers are part of the gig economy, which holds some financial uncertainty.

Repossessions have become more complicated and have additional risk factors that business owners need to prepare for. “Breach of peace” is a significant issue in the repossession industry, and state laws require that repo agents avoid breaching the peace during repossessions. Currently, scenarios like involving law enforcement during a repossession, incorporating violence or the perception of violence, or trespassing onto a property all qualify as a breach of peace. With the increased focus on breach of peace, it’s best for repo agents to avoid interacting with the customer whenever possible.

Finance companies have also been increasing the number of free storage days required in their contracts with repossession companies. Currently, vehicles stay on the lot for four days or longer, meaning companies carry higher vehicle storage costs or need additional space for vehicle storage. This additional storage time delays a vehicle’s transportation to auction, and during that time, the vehicle’s value depreciates, meaning auction sales are lower.

Related Industries

Towing

Target Market

Repo businesses typically market to creditors or leasing companies. A repo business may specialize in a certain type of repossession, like automobile or boat repossession. A repo business’ specialization will also define its target market.

Skills, experience, and education useful in running a repo business

Starting a repossession business doesn’t require a business degree, but certain skills and experiences are valuable in starting and running this type of business.

Knowledge of state repossession rules. States have different rules regarding repossession, so a business owner needs to understand these rules to avoid potentially breaking the law or giving the lessee an advantage in court.

Knowledge of the type of product to be repossessed. The business owner should be familiar with the type of equipment that will be repossessed; if a business is repossessing boats, then a repo agent will need to be skilled in working around and driving boats.

Attention to detail. Attention to detail is highly important for identifying the appropriate items to repossess and removing the items without causing any damage.

Confident nature. Confidence is important in this industry, so repossession agents with a self-assured nature will be advantageous.

Conflict resolution skills. Even though repo agents try to avoid interacting with customers, interactions will occur, and they can get heated. A business owner with strong conflict resolution skills can minimize these conflicts and get out of these situations quickly and safely.

Clear head under pressure. Repo work can lead to high-pressure situations, so workers need to think clearly even when under pressure.

Management experience. A business owner who has previously hired, trained, and managed employees will be better prepared for these challenges when it’s time to expand their repo business.

 

Educational Resources

Amazon has several good books for starting a repo business, such as:

 

Auto Repossession Business Success
Skip Trace Secrets: Dirty little tricks skip tracers use

 

Costs to Start a Repo Business

Starting a repo business can be expensive, especially if you’re starting a multi-truck business. Plan to spend $80,000 or more on a new truck, which brings startup costs to $90,000 or more. If the startup costs of purchasing multiple trucks is too great, consider starting on a smaller scale with one vehicle or working with freelancers who already have their own tow trucks.

Common startup costs for a repossession business:

  • Tow truck or flatbed truck
  • Equipment like wheel lifts
  • Storage lot
  • Computer and printer

Steps to Starting a Repo Business

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a clothing line business plan.  Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).  Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a repo business

Step 4: Select your Location

Most repo businesses will need to rent a secure parking lot and garage. Having a space close to a central location is ideal for reducing travel time and expenses. Rental costs will vary depending on the size, location, and amenities of the property, like the presence of video cameras.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

In some states, licensing for a repo business is required. The types of business licenses, permits, and registrations that will be required to start a repo business may include a commercial driver’s license (CDL), Employer Identification Number, Occupancy Permit, among others.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a repo business is another.  Funding to start a repo business can be difficult due to the expense of the vehicles.  In order to get a loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Plan in Place

Marketing won’t only help a repo business build up its initial client roster but will also help that business grow and expand later on. Creating a website, brochure, and business cards are essential marketing steps for a new business. In the repo industry, contacting potential clients directly is an important marketing step, but business owners need to be prepared to pick up the phone and make those calls. Marketing costs will vary depending on the activity and how much marketing the business owner does on their own versus hiring a professional marketer.

Related: Low-cost ideas to market a new business

Step 9: Get Business Insurance

A repo business will need several different insurance policies for full coverage. Be sure to get quotes before starting as insurance is a large cost for repo businesses.

  • General liability insurance protects the business if clients or property are injured or damaged because of the business’ actions or while on the business’ property.
  • Commercial property insurance protects the business if its property or equipment is damaged or destroyed in an event like a fire.
  • Wrongful repossession insurance helps to cover any damages that may occur if the business is found to be negligent or to have wrongfully repossessed a vehicle.
  • Garagekeepers legal liability insurance offers additional coverage that protects the business if a customer’s vehicle is damaged while it’s being stored on the business’ property.
  • Commercial auto insurance helps cover expenses that can result from a business vehicle being ever involved in an accident.
  • Worker’s compensation insurance can cover expenses like lost wages and medical bills that can occur if an employee is ever hurt while on the job.
  • Surety bonding insurance covers the cost of your services paid by the client if you cannot fulfill your contractual duties.  Some states require bonding.

Many factors, including the value of a business’ vehicles and the value of the vehicles that it will be transporting, will affect insurance policy cost. To get the most accurate idea of how much to budget for insurance, request policy quotes from multiple providers. Compare the quotes and consider premium costs and factors like differences in coverage limits, exclusions, and deductibles.

Related: Types of insurance your business may need

Step 10: Hiring Employees

It’s possible for a business owner to perform most or all of the initial repo jobs, but as the business grows, it will be time to hire employees. According to PayScale, repossession agents earn an average of $13.71 per hour, though that hourly rate can range from $10.66 to $18.36.

In addition to paying employee salaries, a business’ budget needs to include the other expenses that come with hiring staff. Paid time off, health insurance contributions and worker’s compensation insurance are all standard expenses that may need to be worked into the budget.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How much can you potentially make owning a repo business?

A repo business’s profits will vary depending on the business’ specialization, the number of clients it has, and even the number of repossessions the business successfully makes. According to Shmoop, the repo industry averages range between $150 and $400 per car. If a business repossesses between four and five cars a week, that amounts to an income between $4,000 and $6,500 a month, equating to $50,000 to $80,000 per year before expenses.

If a business owner buys a used tow truck, they may be able to keep expenses down while still earning a healthy income. Working with freelance drivers who already have their own tow trucks can also help minimize costs while still allowing the business to profit from the increased amount of work done.

 

Things to consider before starting a repo business

Before starting a repo business, be sure to thoroughly research your existing competitors that specialize in the type of repossessions you’ll perform. It will be much easier to build up a client base if you’re not trying to compete with many other businesses that already have established relationships with these clients.

It’s also important to get firsthand experience in the repo industry. Spending a few years working with a reputable repo business can give you valuable experience and insight into the challenges of this industry. This experience will leave you better prepared to establish your business, but it also gives you a sense of whether you’ll want to work in this industry long-term before making the financial investment of starting your business.

 

Resources:
American Recovery Association