How to start a car rental business

Like most new ventures, getting a new car rental business up and moving takes time and good planning.

Step 1: Pick a type of car rental business

Opening a car rental business comes with options: You could buy into a major franchise, such as Hertz or Dollar, partner with a car dealership, buy an existing rental company with an established customer base, or start from scratch with a brand-new business. Let’s look at these choices more closely:

• Buy into a major car rental franchise

Joining a major car rental chain provides a fast entry to the market. You’ll receive help to get your agency established, marketing support, the benefit of national brand recognition and maybe financing to help you buy your fleet of vehicles and build up your business. However, this route also comes with downsides: You won’t have full control of the business, as the franchisor sets the rules. You’ll lose a percentage of every sale to the brand owner as commission, and you’ll need to pay them start-up and recurring fees. On top of these issues is the basic cost. Buying into a major chain can be expensive. For example, to open an Avis franchise you can expect to spend anywhere from $606,000 all the way up to an eye-watering $1,570,000.

• Partner with a car dealership

With this option, you strike a deal with a car dealership to provide rental cars to their customers when their vehicle is in for service and repair. This means you’ll have a restricted customer base and most rentals will only be a day or two, but your costs to get started will be lower as you’ll only need a small fleet of vehicles. The secret of this arrangement is to work with a dealership that has a large vehicle service operation. You want as many cars in their workshop as possible.

• Buy an existing car rental business

Buying an existing independent car rental agency offers some of the benefits of joining a major chain – established customer base, recognized brand name, ready fleet of vehicles, etc. The disadvantage to this option are that as well as buying the agency’s goodwill, you also buy any negative aspects of the business. You also need to know why the owner is selling and take a forensic look at the books. The key action here is to do your due diligence properly and look at several businesses before making your choice. 

• Start a new car rental business from scratch

Starting from scratch will give you full control of the business and may be cheaper than buying an existing rental agency or joining a major franchise. You’ll also have the luxury of shaping the business for a particular target market – for example, you could provide exotic cars to wealthy customers at premium prices. However, as you’re starting new, you’ll have to build your brand and customer base from zero – which will take time and burn through cash for marketing. You’ll also have the headache of finding premises, getting permits, obtaining your vehicle fleet and hiring all your staff. 

Let’s assume you wish to go the brand new route and start from scratch. This is what you need to do:

Step 2: Who are your target audience?

Knowing who you’re selling to is crucial for any business, as your target market determines what you sell, your pricing, location and more. For car rental businesses, there are key customer segments to aim for:

• Tourists
• Business users 
• Loaner cars for car dealerships
• Long-term rentals
• Short-term rentals
• Other – exotic, off-road, trucks and vans etc.

The most important factors here are determining that there’s a need for what you offer and securing a large enough market to support your business. 

Step 3: Write your business plan

If you’re seeking external investment or a commercial business loan to open your car rental business, you’ll need a detailed business plan to support your pitch or application. Investors and lenders will want to know why you need their funds and what the money will do for your new agency. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. 

Even if you don’t need investment or a loan, a business plan can still be a very useful vital tool. Use it as your business manual, referring to the contents to guide your strategy and manage your financials.

Find out more about creating your business plan here.

Step 4: Choose your business name

You’ll need to register your rental agency with local and state authorities. But before you do that, you’ll need a name for the business. You’ll want a name that is memorable and not taken by another organization, as infringing on someone else’s brand name and copyright could end up in a costly lawsuit. Check the official trademark database with the US Patent and Trademark Office to make sure your business name is available.

You will also want a website and branded email addresses for your agency. Check to see if your preferred company name is also available as a domain name– such as: www.rentalcars101.com. You can do this at the global domain name database – WhatsmyDNS.net. If your domain name is available, you should be able to buy it via any of the advertised web hosting services. 

5: Register and license your business

Once you’ve settled on a name, you must decide if you want to run the business as a sole proprietorship, an LLC or a corporation. Although it involves more paperwork, operating as a corporation can protect you if the business does not succeed, as you are not personally responsible for the company’s debts. If you choose this route, you must submit your articles of incorporation to the secretary of state’s office in the state where you register. You can do this in-person, online, or by mail. You will have to pay a registration fee at the time of filing – typically $100.

Next you’ll need to obtain the necessary business licenses and permits from your state and local authorities. If you’re unsure of the process, it may be worth hiring a business attorney to do this work for you. Additionally, be sure to secure the appropriate business insurance to protect your car rental business from potential accidents, natural disasters, theft, and other risks.

Step 6: Get funding

If you don’t have enough cash on hand to launch your new business on your own, you’ll need funds from investors or lenders. Many new businesses get started using financial support from friends and family, but if that’s not an option, there are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need to get your car rental shop off the ground but be aware that investors will usually want a piece of the action in exchange for their money. This means you will need to give up a share of your ownership and you may lose overall control of the business. 

With a business loan you don’t have to surrender a share of your store to get the funds. Although it’s never easy for new businesses to borrow money, some lenders have special products and programs for startups and entrepreneurs. These types of financing include:

• Term loan – this is a lump sum that you pay back over time. Borrow up to $5million over as long as 25 years. Collateral may be required.
  
• Business line of credit – a loan that functions like a high-value credit card. Withdraw cash anytime up to the maximum of your credit limit. You only pay interest on the sum you withdraw, not the whole line. This can significantly reduce your borrowing costs. Collateral may be required.
• Asset finance – your vehicle fleet will be one of your biggest start-up costs. However, asset finance can ease the financial strain by using your new vehicles as collateral for a loan. Pay for your fleet as it makes money for you. Different types of lease can give you the option to own the cars at the end of the contract or swap them for newer vehicles. No added collateral is required.
  
• Merchant cash advance – borrow against the value of your credit/debit card sales. As your card sales increase, your credit limit goes up. Pay the loan back with a small percentage of your weekly or daily card sales. No added collateral is required.
• Equipment loans use the asset you’re financing as security, similar to a car loan or a residential mortgage, so no added collateral is required.  Buy machinery, furniture, technology, etc. Use the equipment as you pay for it. 

To get these types of loan you can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of loans from a range of lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a business loan before. 

Step 7: Find the right location

After organizing your finances, the next step is choosing the right location for your business. It’s essential to base your agency close to where the bulk of your customers will come from. For instance, if you’re targeting tourists, being near an airport is crucial. Alternatively, if you’re chasing business users, a downtown location may work out better. Consider factors like property size and proximity to other businesses or services that align with your customer base, such as car dealerships, convention centers and business parks. A strategic location can significantly impact the success of your venture by making it easily accessible to your target audience.

Step 8: Create a rental contract

Your rental agreement is the contract between your rental car company and the customer who is renting the vehicle. The contract will cover terms and conditions, liabilities, what happens in the case of an accident, and an explanation of who is responsible for what. To ensure your contract fully protects your business and your customers, it is best to have it drawn up by a legal professional who has experience in the car rental industry.

Step 9: Build your operations team

You’ll need employees and a support system to operate the business. This includes workers to run the front office and answer phones, a book keeper to keep track of your accounts, and mechanics to maintain your car fleet. Beyond finding and training the right people, you’ll also need to get to grips with your responsibilities as an employer, including what types of insurance you’ll need to obtain.

Step 10: Create your online presence

The majority of car rental bookings are now made online or via smartphones. This means your digital presence must be even stronger than your physical presence in your target market. As well as a streamlined and easy to use website, you’ll need a sleek mobile app and a solid identity on social media. Posts, tips and travel suggestions on X, Facebook and Instagram can boost your visibility to tourists and casual users, while business orientated articles on Linked In can support your corporate sales. 

Be aware that online search engines – also referred to as ‘web crawlers’ – scan millions of websites every day. The fresher and more helpful your content is, the higher your search rankings will be. Getting on the first page of every Google search is critical. This means you must regularly update the content of your site. Also, expect to pay for your presence on travel booking sites such as Kayak and Expedia.