How to Start a Repo Business
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.
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.
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.
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.
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.
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.
What skills are needed to run 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 repossession rules. There are different state laws to be aware of, so a business owner needs to understand these rules to avoid potentially breaking any laws 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 repossession company.
If you don’t have experience in the industry, it can be helpful to spend a few years as an employee of a reputable repo business to get valuable experience and insight into the repossession process and 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.
Checklist for Starting a Repo Business
If you’re thinking about starting your own repo business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.
Step 1: Write a 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
Step 2: Form a Business Entity
A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures 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.
When deciding on which business entity is best for a repo business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
Step 3: Name the Business
Finding the perfect business name for a repossession agency can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.
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
The requirements for obtaining a repossession license vary from state to state, so be sure to do your research before starting your business. Some states have very stringent requirements, while others are a little more relaxed. Depending on the state, you may be required to complete a state-approved training program and pass a licensing exam before being able to take any work.
In addition, there will also be general business requirements depending on where the business is located. A few of these include a business license, commercial driver’s license (CDL), Employer Identification Number, and Occupancy Permit.
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 company 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.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
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 such as car dealers and lenders 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.
One important task while working on the marketing is developing an online presence. A website developer may be out of the budget, but Wix makes it easy for non-technical people to get a website running quickly and affordably.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a repo business. A few of these include:
– 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.
– 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.
– Surety bonding insurance Not every state requires this insurance, but it is used to cover the cost of your services paid by the client if you cannot fulfill your contractual duties.
The cost to insure a repo business can vary depending on many factors, including the value of a business’ vehicles and the value of the vehicles that it will be transporting, which 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.
Step 10: Hire 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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost 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.
Some common startup costs for a repossession business include:
– Tow truck or flatbed truck
– Equipment like wheel lifts
– Storage lot
– Computer and printer
How much can a repo business owner make?
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.
Are there grants to start a repo business?
It’s extremely rare to find a grant to start a repo business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a repo business?
The NAICS code for a repo business is 561491.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
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