How to Start a Car Rental Business in Ontario: Step-by-Step Guide + Funding Options

ByMaurice

Starting a new car rental business in Ontario can be a lucrative venture, as the province is home to many tourist destinations, business travelers, and a growing population. According to a report by Statista, revenue in the Car Rentals segment is projected to reach US$2.36bn in 2023.

Additionally, revenue is expected to show an annual growth rate (CAGR 2023-2027) of 1.42%, resulting in a projected market volume of US$2.50bn by 2027. This indicates that there is a significant demand for car rental services in Ontario and across the country.

One of the advantages of starting a car rental business is the growing demand for car rental services. With the increasing number of tourists, business travelers, and commuters, there is a constant need for reliable and affordable car rental services.

Additionally, the rise of ride-sharing services such as Uber and Lyft has created new opportunities for car rental businesses to provide flexible and customized transportation solutions.

However, starting a car rental business also comes with its challenges. The industry is highly competitive, with established players such as Enterprise, Avis, and Hertz dominating the market. New entrants need to differentiate themselves by offering unique services, competitive pricing, and exceptional customer service.

Additionally, the high cost of acquiring and maintaining a fleet of vehicles, as well as complying with industry regulations, can be a significant barrier to entry for new businesses.

Despite these challenges, starting a car rental business can be a profitable venture if done right.

By leveraging technology, providing excellent customer service, and offering flexible and customized transportation solutions, new businesses can carve out a niche in the market and succeed in the competitive car rental industry.

Step 1: Conduct Market Research

Conducting market research helps identify the demand for car rental services in a particular area or region. It provides insights into how many people are looking for car rental services, what their requirements are, and what kind of vehicles they are interested in renting.

This information can help a car rental business determine whether or not it is viable to start a business in that area. To conduct market research:

  • Define your target market: Identify the specific audience you want to target with your car rental services. Consider factors such as age, gender, income, occupation, and location.
  • Identify your competitors: Identify other car rental businesses that are operating in your area and analyze their services, pricing, and marketing strategies. You can use online search engines, business directories, and social media to research your competitors.
  • Conduct surveys: Conduct online surveys or face-to-face interviews with potential customers to gather information about their needs, preferences, and expectations. This will help you to identify gaps in the market and tailor your services to meet the needs of your target market.
  • Analyze industry trends: Keep up-to-date with industry trends, including changes in customer behavior, technology advancements, and government regulations. This will help you to stay ahead of the competition and adjust your business strategy as needed.
  • Analyze market data: Use market data to gain insights into the car rental industry in Ontario. This may include data on the number of cars rented each year, average rental rates, and the most popular rental locations.

Step 2: Create a Business Plan

A well-crafted business plan can serve as a roadmap for your new car rental business, guiding decision-making and providing a framework for measuring success. It helps to ensure that all business activities are aligned with the overall strategy and goals of the business.

Follow the steps below to create a business plan:

  • Executive Summary: The executive summary should briefly describe the business, its mission, goals, and objectives. It should provide an overview of the car rental industry in Ontario and highlight the unique value proposition of the business.
  • Market Analysis: Conduct market research to identify the demand for car rental services in Ontario. This includes analyzing market size, growth trends, target market, customer demographics, and competition.
  • Company Description: Describe the car rental business in detail, including its legal structure, location, facilities, and organizational structure. Provide information about the owners, management team, and key personnel.
  • Services and Products: Describe the car rental services offered, such as types of cars available, rental rates, and additional services such as insurance, roadside assistance, and GPS.
  • Marketing and Sales Strategy: Outline the marketing and sales plan for the business. This includes identifying target customers, promotion strategies, pricing, and distribution channels.
  • Financial Projections: Develop financial projections, including revenue and expense forecasts, profit and loss statements, and cash flow projections. This should include a detailed budget for the start-up phase, as well as projections for the first 3-5 years of operation.
  • Funding Requirements: Determine the funding requirements for the car rental business. This includes identifying start-up costs, working capital needs, and potential sources of financing.
  • Risks and Mitigation Strategies: Identify potential risks and challenges the business may face and develop strategies to mitigate them. This includes risks related to competition, regulations, economic conditions, and operational challenges.
  • Conclusion: Summarize the key points of the business plan and emphasize the viability and potential for success of the car rental business in Ontario.
  • Appendices: Include any supporting documents or information, such as resumes of key personnel, market research reports, and financial statements.

Step 3: Register Your Business

Registering your car rental business is an important step in establishing a legitimate, credible, and legally compliant business. It provides liability protection, access to government programs and services, and brand protection, and can help build trust with customers and other stakeholders.

Here’s how to register your business:

  • Choose a business name: Choose a unique name for your car rental business that is not already in use by another company.
  • Register your business: Register your business with the Ontario government by completing the required forms and paying the registration fee. You can register your business online through the ServiceOntario website or by mail.
  • Obtain a business number: Apply for a Business Number (BN) from the Canada Revenue Agency (CRA). This is a unique identifier that you will need for tax purposes.
  • Register for HST: If your car rental business is going to earn more than $30,000 per year, you will need to register for the Harmonized Sales Tax with the CRA.
  • Register for WSIB: If you are hiring employees for your car rental business, you will need to register with the Workplace Safety and Insurance Board to provide coverage in case of workplace accidents or injuries.

Step 4: Find Funding For Your Car Rental Business 

funding is absolutely critical for starting a car rental business in Ontario due to substantial vehicle acquisition costs, insurance requirements, and regulatory compliance needs.

Why Funding is Important For a Car Rental Business

You are going to need capital for:

  • Vehicle fleet acquisition – Car rental businesses require significant upfront investment in multiple vehicles, typically ranging from $100,000-$500,000+ depending on fleet size and vehicle types. Even used vehicles require substantial capital investment.
  • Commercial insurance – Car rental insurance is extremely expensive due to liability exposure from multiple drivers. Commercial auto insurance, liability coverage, and comprehensive protection for the entire fleet represents a major ongoing expense.
  • Regulatory compliance and licensing – Must register as a motor vehicle dealer in Ontario, obtain proper business licenses, and comply with consumer protection regulations. Vehicle registration, safety certifications, and emissions testing for the entire fleet.
  • Facility and operational setup – Office space for customer service, vehicle storage and maintenance facilities, potentially airport or high-traffic locations which require substantial lease deposits and monthly rent.
  • Technology systems – Reservation management software, GPS tracking systems, keyless entry systems, vehicle maintenance tracking, and customer management platforms essential for professional operations.
  • Working capital for operations – Ongoing fuel costs, maintenance and repairs, cleaning services, roadside assistance programs, and staff salaries while building customer base and managing seasonal fluctuations.

How To Raise Funding For Your Car Rental

Here’s how you can raise capital for your new venture:

  • Traditional Financing Banks and credit unions offer business loans and lines of credit. You’ll typically need a solid business plan, good credit score, and possibly collateral. Consider both major banks like RBC, TD, and Scotiabank, as well as smaller credit unions that may offer more personalized service.
  • Equipment Financing Since vehicles are your primary assets, equipment financing or leasing can help you acquire your fleet without large upfront costs. Many lenders specialize in vehicle financing for commercial use, and the vehicles themselves serve as collateral.
  • Angel Investors and Venture Capital If you’re planning significant expansion, angel investors or VC firms might be interested, especially if you have a unique business model or technology component. Toronto has an active startup ecosystem with investors familiar with mobility and transportation businesses.
  • Peer-to-Peer Lending Online platforms like Lending Loop or Paymi connect businesses directly with individual lenders, often with faster approval processes than traditional banks.
  • Revenue-Based Financing Some alternative lenders offer funding based on your projected revenue, which can work well for service businesses with predictable cash flows.
  • Partnership Opportunities Consider partnering with established players in the tourism or hospitality industry who might provide capital in exchange for preferred booking arrangements or revenue sharing.
  • Government programs: There are many government programs available at the federal, provincial and municipal level to help you get started with your new small business:

Government Programs for New Business

  • BDC Small Business Loan: A BDC Small Business Loan is designed to help Canadian entrepreneurs like you fund a wide range of business needs, from purchasing equipment to covering payroll or launching marketing campaigns. You can apply easily online for amounts up to $100,000, with approval subject to review.
  • BDC Startup Financing: If you’re looking to launch or grow a business in Canada, BDC’s Startup Financing can help get you started with flexible loans up to $150,000. BDC is specifically focused on supporting entrepreneurs and offers advice alongside funding.
  • Community Futures program: The program delivers a mix of funding, mentorship, and business advisory and could be a key source of support for your small business. This federally funded initiative focuses on building resilient local economies across Canada.
  • Canada Small Business Financing Program: CSBFP is a federal initiative that aims to make it easier for you to get loans from major banks or credit unions by having the government share part of the risk with your lender.
  • Ontario Business Grants: This article outlines the business grants available in Ontario, who offers them, how they can be used, and what it takes to qualify.
  • Thunder Bay Ventures Northwestern Ontario Investment Pool Loans: NWOIP offers loans extending up to $600,000. Thanks to their funding partner FedNor/Industry Canada, these expanded loans support local businesses in starting up or expanding.
  • Superior North CDFC: Superior North CFDC administers a local investment fund to help finance new or existing small businesses and social enterprises in the Northwest Region of Ontario.
  • RRFDC Equity Investments: Rainy River Future Development Corporation provides equity investments to entrepreneurs in the Northwest Region of Ontario, wishing to expand their businesses or begin a new business.
  • Patricia Area Community Endeavours Business Loans: PACE provides access to capital for small businesses in Patricia Region through loans.
  • Nishnawbe Aski Development Fund (NADF): NADF delivers Women Entrepreneurship Fund to support Indigenous women entrepreneurs seeking financing to start or grow a business.
  • Chukuni Community Development Corporation Business Loans: The Corporation offers financing through equity participation, loans, and loan guarantees to business ventures in its catchment area.
  • Community Futures of North & Central Hastings & South Algonquin Business Loans: Community Futures of North & Central Hastings & South Algonquin Business Loans
  • ACCFutures ACCTermStartup: The ACCTermStartup Loan, offered by ACCFutures, is a specialized financial solution for startups within Akwesasne, Cornwall, and The United Counties of Stormont, Dundas & Glengarry.
  • Orillia Area Community Development Corporation CCBF Grant: The Community Capacity Building Fund is intended to strengthen its communities by supporting projects of both for-profit businesses and non-profit organizations/social enterprises.
  • Surplus rebate for businesses: The Ontario government is keeping costs down for workers and businesses by giving back over $2.5 billion by rebating Workplace Safety and Insurance Board surpluses.
  • Invest Ottawa Starter Company Plus: The Starter Company Plus program offers free training and mentorship to support early-stage, non-tech, Ottawa-based businesses.

Step 4: Obtain Necessary Permits and Licenses

Obtaining the necessary permits and licenses for your new car rental business in Ontario is essential for legal compliance, consumer protection, credibility, access to resources and support, and insurance coverage.

It ensures that your business is operating safely and legally, and can help build trust with customers and other stakeholders.

You would generally need to obtain a business license from the municipality where your business is located and comply with any applicable regulations or bylaws related to vehicle rental operations.

Step 5: Get Insurance Coverage

Getting insurance coverage for your new car rental business in Ontario is essential for liability protection, legal compliance, customer confidence, business continuity, and competitive advantage.

It helps ensure the safety and financial security of your business, your customers, and your employees.

To obtain insurance:

  • Research insurance providers: Start by researching insurance providers that specialize in providing coverage for car rental businesses. You can search for providers online, ask for recommendations from other business owners or industry associations, or consult with an insurance broker who can help you find the right coverage for your needs.
  • Determine your coverage needs: Before you start shopping for insurance, you need to determine the type and level of coverage you need for your business. This may include liability coverage, property damage coverage, business interruption coverage, and more. Consider the size of your business, the number of vehicles you will be renting, and the types of risks you may face.
  • Obtain multiple quotes: Once you have identified potential insurance providers and determined your coverage needs, you should obtain multiple quotes from different providers. This will allow you to compare coverage and prices and select the best option for your business.
  • Review and compare policies: When you receive insurance quotes, take the time to review and compare policies carefully. Look for any exclusions or limitations, and make sure that the coverage provided meets your specific needs.
  • Work with a broker or agent: If you are unsure about the types of coverage you need or have questions about your policy, consider working with an insurance broker or agent who specializes in car rental businesses. They can help you navigate the insurance market and find the best coverage for your needs.
  • Purchase your policy: Once you have selected an insurance provider and policy, purchase your coverage and make sure that you understand the terms and conditions of your policy. Keep all insurance documents in a safe and accessible place, and make sure that you renew your coverage on time to avoid any gaps in coverage.

Step 6: Choose a Suitable Location

Choosing a suitable location for your new car rental business in Ontario is important for visibility, accessibility, competition, cost, legal compliance, and storage and parking.

A well-chosen location can help attract more customers, increase brand recognition, and position your business for long-term success.

Follow the steps below to choose a suitable location:

  • Research the market: Conduct market research to determine the demand for car rentals in different areas of Ontario. Look at factors such as population density, demographics, and travel patterns to identify areas where there is a high demand for car rentals.
  • Analyze the competition: Analyze the competition to identify the existing car rental businesses in the areas you are considering and assess their strengths and weaknesses. Look at their prices, services, and locations to identify any gaps in the market that your business can fill.
  • Consider accessibility: Choose a location that is easily accessible for your target customers. Look at factors such as proximity to airports, train stations, and bus terminals, as well as the availability of parking and public transportation.
  • Evaluate the cost: Consider the cost of renting or leasing a property in different areas of Ontario, and weigh this against the potential revenue your business can generate. Look at factors such as rent, utilities, and taxes to determine the most cost-effective location for your business.
  • Look at zoning laws: Check the zoning laws in the areas you are considering to ensure that a car rental business is permitted in the location you are considering.
  • Seek advice: Consider seeking advice from a real estate agent or business advisor who can provide insights into the best locations for a car rental business in Ontario.

Step 7: Acquire Rental Vehicles

Rental vehicles are the primary revenue source for a car rental business. Acquiring a fleet of rental vehicles is essential to generating revenue and maintaining the profitability of your business.

To acquire rental vehicles:

  • Determine your budget: Before acquiring rental vehicles, determine your budget and decide how much you can afford to spend on vehicles.
  • Identify the type of vehicles you need: Identify the types of vehicles you want to offer for rent, based on market demand and your budget. Consider factors such as passenger capacity, fuel efficiency, and suitability for local driving conditions.
  • Decide whether to lease or purchase: Decide whether to lease or purchase your rental vehicles. Leasing may be a good option if you want to conserve your capital and have the option to upgrade your fleet more frequently while purchasing may be a better option if you plan to keep the vehicles for a longer period of time.
  • Research suppliers: Research suppliers of rental vehicles in Ontario. Consider factors such as the cost of the vehicles, maintenance and repair services, and their reputation in the industry.
  • Negotiate the terms: Once you have identified a supplier, negotiate the terms of the rental agreement or purchase contract. Consider factors such as the length of the rental agreement, the cost of the vehicles, the maintenance and repair services included, and any penalties for early termination.
  • Arrange for financing: If you are purchasing your rental vehicles, arrange for financing through a bank or other lender. Consider factors such as the interest rate, repayment period, and the amount of the loan.
  • Inspect the vehicles: Before taking delivery of the rental vehicles, inspect them thoroughly to ensure they are in good condition and meet all safety standards.

Step 8: Hire Staff

Hiring staff for your new car rental business is essential for providing excellent customer service, managing operations, supporting business growth, accessing expertise, and ensuring legal compliance.

Careful recruitment and training can help ensure that your staff are knowledgeable, professional, and committed to the success of your business.

To hire staff:

  • Determine the roles and responsibilities: Determine the roles and responsibilities you need to fill for your car rental business. This may include customer service representatives, sales associates, maintenance personnel, and administrative staff.
  • Write job descriptions: Write job descriptions for each role, including the required qualifications, experience, and responsibilities. Clearly outline the expectations and requirements for each position.
  • Advertise the job openings: Advertise the job openings through various channels such as online job boards, social media, or local newspapers. You can also use your personal and professional networks to find suitable candidates.
  • Screen resumes: Screen resumes and cover letters to identify the candidates who meet your requirements. Shortlist the candidates who have the right qualifications, experience, and skills for each position.
  • Conduct interviews: Conduct interviews with the shortlisted candidates. Ask questions about their experience, qualifications, and work style to assess their suitability for the position.
  • Check references: Check the references of the top candidates to verify their employment history and performance in previous roles.
  • Make an offer: Make an offer to the top candidate for each position. Clearly outline the terms of employment, including salary, benefits, and any other relevant details.
  • Complete the hiring process: Once the candidate accepts the offer, complete the hiring process by providing them with the necessary paperwork, such as a job offer letter, employment contract, and any other required documents.
  • Provide training: Provide training to new employees to help them understand their roles and responsibilities, company policies and procedures, and any relevant industry regulations.

Step 9: Advertise and Promote Your Business

Advertising and promoting your new car rental business is important for increasing visibility, building brand recognition, targeting specific customer segments, driving sales growth, and gaining a competitive advantage.

A well-executed advertising and promotion strategy can help your business succeed and grow over time:

  • Develop a marketing plan: Develop a comprehensive marketing plan that outlines your advertising and promotional strategies, target audience, and budget.
  • Create a website: Create a professional and user-friendly website that provides information about your business, services, and rates. Ensure that your website is optimized for search engines to increase your online visibility.
  • Use social media: Use social media platforms such as Facebook, Instagram, Twitter, and LinkedIn to reach a wider audience and engage with your customers. Regularly post updates about your business, promotions, and special offers.
  • List your business online: List your business on online directories and review sites such as Google My Business, Yelp, and Trip Advisor to increase your online visibility and attract customers.
  • Create flyers and brochures: Create flyers and brochures that highlight your services and rates, and distribute them in high-traffic areas such as airports, train stations, and tourist destinations.
  • Advertise in local publications: Advertise in local publications such as newspapers, magazines, and community newsletters to reach a local audience.
  • Participate in trade shows and events: Participate in trade shows and events related to the car rental industry, travel, and tourism to showcase your services and network with potential customers.
  • Offer referral incentives: Offer referral incentives to your existing customers to encourage them to refer their friends and family to your business.
  • Provide excellent customer service: Provide excellent customer service to your customers to ensure they have a positive experience and are likely to recommend your business to others.

Conclusion:

With the growing demand for car rental services, there are ample opportunities for new businesses to succeed by offering unique and customized solutions. However, it’s important to be aware of the challenges such as competition, cost of acquisition, and industry regulations.

By developing a sound business plan, leveraging technology, and providing excellent customer service, new businesses can thrive in the car rental industry in Ontario and contribute to the province’s economy.

Resources for Car Rental Businesses in Ontario

Government Resources

Industry Associations

Other Organizations

About the author

Maurice

Maurice (Moe) Muise learned the ins-and-outs of government while an employee of the Government of Canada in Ottawa for 10 years. His current focus is helping small businesses in Ontario to identify and maximize government grants to grow their business. Click here to learn more about Moe’s background and how he can help your business.