How to Start a Vehicle Rental Business

Co-authored by Helena Ronis

Last Updated: August 20, 2024 Approved

Vehicle rental is a very competitive industry that can also be quite lucrative. To start a business, you will need to decide on a business model, find an ideal location, and build your fleet. Also, follow all insurance and regulatory requirements, such as obtaining business permits, before renting your first car. If you can handle the risks involved while setting up your business for day to day operation, you may find renting out vehicles to be very rewarding.

Part 1

Part 1 of 3:

Starting Up a Rental Business

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1
Research the market in your area. Identify where all the car rental places are in your area. Look for places you might locate your business. The car rental business can be competitive, so you need to figure out what people want and make it accessible to them. Try talking to people and businesses to decide who would benefit from a car rental business. ^{[1]
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- For example, car rental businesses near airports tend to do well. You may be able to open a franchise in the airport, or you may need to locate elsewhere.
- Consider what your customers need. If you’re in a tourist area, for instance, people may be willing to rent expensive cars they wouldn’t otherwise own. That could be an opportunity for your business to capitalize on.
2
Choose to rent cars daily or by contract. The main types of car rental operations are contract hire and daily hire. In a contract hire business, customers lease vehicles for a set amount of time. Your customers will typically be businesses. Daily hire businesses involve renting out cars for short periods of time, often to individuals. ^{[2]
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- Think of who you want to rent to. If you would rather deal with the general public, starting with daily hires is better. If you don’t mind long-term deals, contract hires are better for you.
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3
Start a franchise to simplify the set-up process for your business. The major car rental chains operate around the world. You can get involved by going onto their websites and requesting information about franchise opportunities. They will contact you, then help you set up the franchise. A franchise typically takes less paperwork and money to set up than a new retail business. ^{[3]
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- With a franchise, you have the benefit of a corporate brand. You buy all your equipment from the corporation. They help you with paperwork, such as when obtaining licenses, and may offer business training. Advertisements made by the corporate office help your business, as does the name recognition. ^{[4]
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- As a franchisee, you sign a contract with the company. You will need to pay them every year to use the company name. They may give you rules, so you have less control over how you run your business. Bad publicity from other branches can harm your business, and the company can decide not to renew your contract when it expires.
- Starting a rental business from scratch can be tricky without entrepreneurial experience, but if you’re successful, you don’t have to pay a rental chain for the rights to use their image.
4
Purchase an existing rental business to save time and money. Existing businesses are the middle ground between starting a franchise and a new business. A lot of the basic structures are in place, such as insurance services and loan companies. These financial companies may be more likely to work with you because you have the benefit of an established business. You can also inherit a basic fleet of cars and other equipment without having to shop around. ^{[5]
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- Getting an existing business requires a lot of research. Make sure the location is right and that you can capitalize on the market.
- Finding a business to buy can take a little luck. You may need to search around to find someone looking to get out of the rental business. The initial cost can be a little steep, since you often need to pay for existing assets like the car fleet.
5
Choose a location for your operation. Do plenty of market research and find out what you can about your competition. Most of the time, you are better off finding a spot away from existing rental companies. However, visible, accessible, and safe locations attract the most customers. A location near airports, hotels, and train stations often provides a significant boost for a rental business.
- Although being near a transportation hub often is helpful, it may not make or break your business. Plenty of businesses do well in smaller towns without much competition. In addition, a rental company that loans cars to other businesses may not benefit from a high-rent location near an airport.
- If you do intend on starting your business near other companies, come up with a unique service angle, such as renting a luxury car other places don’t have.
- You can start from home if you only have a couple of cars. This can give you an opportunity to build funds. Some disadvantages are that you may not have space to store cars and may not feel comfortable directing customers to your home.
6
Build a fleet consisting of at least several cars. The most important consideration to make at this stage is if you plan on purchasing your cars or leasing them. Purchasing a fleet outright is costly, but it may save you money in the long run. Leasing involves renting cars from a place like a dealership, but you have to pay the contract cost as long as you have the car and have to return it when you’re done using it. ^{[6]
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- Initially, your fleet doesn’t have to be large. Having between 3 to 5 cars can be enough. Some people even start from home with 1 or 2 luxury cars.
- A well-maintained fleet with high turnover means more profit. However, employing your own maintenance staff can be expensive. Leased vehicles are often under warranty, so you aren’t stuck with expensive repairs.
- Remember the weather conditions in your area. If you live in a place with harsh winters, for example, have some cars that can handle the snow.
7
Purchase a comprehensive insurance policy for your fleet. Shop around for policies that offer both collision and liability protection for your cars. These policies protect your business in case of accidents. Make sure your policy is also available for your customers so they can avoid liability. They can choose to pay extra for coverage or decline it when they rent a vehicle. ^{[7]
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- It is illegal to trade without some form of fleet insurance.
- Speak with professional insurance agents and brokers. Some companies offer “pay as you go” insurance solutions, combining the benefits of an annual policy with more flexibility.
- Finding insurance for a new business can be tough. IT is easier to get insurance when buying an existing business. With a franchise, the parent company provides insurance. ^{[8]
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Part 2

Part 2 of 3:

Funding and Licensing a Business

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1
Write out a business plan describing how your business will operate. A business plan is like a blueprint. Carefully outline the aspects of your business in as much detail as possible. Explain how much funding you need and how you will obtain it. Also, explain how you will attract clients, obtain your fleet, and how you will manage and operate your business. ^{[9]
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- The more specific you are with your plan, the better off you will be. Outlining the plan can help you identify costly weaknesses in your business strategy before they arise.
- You may never need to refer back to your plan to run your rental business. However, you can always use it as a means to refocus on your goals and business strategies.
2
Obtain funding for your business. There are many different ways you can get financing. Many business owners turn to banks to supplement their own contributions. You can also pitch your business to investors. Some investors risk money in the hopes of a return on their investment, while others demand partnership. ^{[10]
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- Bring along your business plan. A good plan makes investors feel more confident in the sustainability of your business.
- Interested friends and family members are the best people to approach and convince for investing. If you don't have any friends or family you can ask, look for outside investors (also known as angel investors). It's best to personally introduce yourself to these investors so they can see that you're serious.
3
Apply for a business license from your local government. Visit the closest finance office in your area and submit a license application. It is a short application you use to describe your business. Some basic questions will ask you for details like the name of your business, what service your business provides, how many employees you intend on hiring, and the name of your insurance provider. Pay a small application fee, then wait about 2 weeks to receive your license in the mail. ^{[11]
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- Depending on where you live, you may need to submit a separate application to your state government. The state government provides a business permit requiring you to keep insurance records and follow zoning laws. You may not be able to open your business without this permit.
- If you need help, look for organizations in your area such as the Small Business Administration. They can guide you in the right direction.
4
Register your business’ name to get a tax identification number. Visit your state government’s revenue and taxation department or log onto their website. Fill out and mail the business form with a small application fee. You need to do this if you plan on naming your business and hiring employees. After about 2 weeks, they will give you a tax identification number, allowing you to open for operation. ^{[12]
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- When you register the business, you get to choose its structure. The most common option is a sole proprietorship, which is easy and straightforward. You are responsible for all of the debts your business incurs.
- A partnership is similar to a sole proprietorship, but 2 or more people share the costs. You will need to create a deed explaining the responsibilities of each partner and how to solve disputes.
- A limited liability corporation is a distinct business. You are not held personally responsible for debts. You get a separate tax number from the state and can open a bank account under the business’ name.

Part 3

Part 3 of 3:

Managing Business Operations

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1
Get software to help you manage day to day operations. Having good computer systems is way more effective than keeping large logbooks. Invest in accounting and fleet management software that allows you to track your finances and cars. Shop around online for a well-reviewed product suite that has the features you need. ^{[13]
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- Some functions the software needs to automate includes payroll, tracking car rentals, storing
2
Draw up a quality rental agreement for your customers. The rental contract is important for avoiding liability issues arising from accidents. Your contract needs to be legally-binding, explaining what happens in any scenario you encounter. This contract needs to be presented to every customer that rents a car. They sign it and you store it on your computer. ^{[14]
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- Hire a lawyer to draw up an effective contract. The lawyer’s fee is worth the long-term protection a good contract affords your business.
- Some aspects the contract covers includes liability in case of an accident, insurance coverage, and late fees.
3
Hire mechanics to maintain your car fleet. Even if you don’t know the first thing about removing a lug nut, you can still make your business work. Good mechanics keep your cars operational. Interview experienced workers that can help you order parts as well as repair problems before they become bigger issues. ^{[15]
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- Bringing on extra help can be expensive for a new business. You can try partnering with an automotive program at a local school to service your cars at little cost.
- Not all cars can be repaired to perfection. Good mechanics can give you insight on when to get rid of old vehicles. Many rental agencies sell cars they no longer use, then invest the profits into new cars.
4
Set up a website for your business. A website is a must if you wish to receive a steady flow of customers. The Internet gives customers flexibility to shop around for rentals before they travel. Use your website to list the cars you have available, rental prices, your phone number, and any other details that can bring customers to your door. If you don’t have a website, potential customers will go to someone that does. ^{[16]
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- Build a starter website using 1 of the free platforms available online. Also, consider reserving your business’ name as a domain name so customers can easily search for your rental agency.
- Install an online booking system on your website so customers can reserve cars online. Search online to shop around for different systems.
- If you have a hard time building your own website, consider hiring a professional. You may also be able to find volunteers at a local university.
5
Form marketing alliances to advertise your business. Speak with other business owners in your area to come up with ways you can work together. Convince hotels and other area businesses to recommend your cars. Also, print up pamphlets you can leave for customers. You can also try partnering with a booking website to get more advertising at the cost of a small sales commission, usually no more than 20%. ^{[17]
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- For example, consider partnering with Rentalcars.com or CarTraveler. If you offer motorcycle or scooter rentals, try BikesBooking.com.

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Question

Can l start a rental car business with cheap used cars or do the vehicles have to be brand new?

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You can start a car rental business with cheap used and brand new cars, it doesn't matter.

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Is it important for my rental vehicles to be fitted with car tracking devices?

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Yes. This way you can trace the whereabouts of vehicles not returned, stolen, etc.

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Is one vehicle enough to build and start your own business?

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It depends on the type of rental car business. If it is an exotic vehicle rental service, then one car is good for the time being. If it is a standard rental car business, then at least 5 cars is a good starting point because more cars could be rented out.

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Tips

Running a business involves a lot of detail-oriented work, so make sure you have systems in place to track them. A good spreadsheet system on the computer can help you keep your business in order.

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A bigger fleet of cars means more options and more turnover. However, if you don’t attract customers, you miss out on potential profit.

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Advertise your business as much as possible. Building a client base is very important for new businesses.

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Warnings

The time and money commitment involved in running a business is stressful. It can affect your relationships, especially if you borrow money from friends and family.

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Starting a business is risky. The car rental industry is competitive, so you can lose money. Make sure you have a great business plan to guide you and don’t risk more than you’re willing to lose.

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Starting a sole proprietorship or partnership means you are liable for any debts you incur. Do not set up your business this way if you think this may be a problem.

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How to Start a Vehicle Rental Business

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Starting Up a Rental Business

Funding and Licensing a Business

Managing Business Operations

Community Q&A

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