Auto Loan
Business Auto Loans for Commercial Vehicles
Unhappy with your current auto loan terms? Click here to refinance and drive home some savings!
Unhappy with your current auto loan terms? Click here to refinance and drive home some savings!
Key Takeaways
A reliable vehicle is essential for many local businesses for various reasons, including product delivery, generating sales, and internal transportation.
However, most small firms lack the financial resources to pay cash for a vehicle. When a company needs to purchase a fleet of vehicles, a shortage of funds becomes even more of an issue. It is through the business auto loan these issues are solved.
Finding an affordable business loan that satisfies your operational demands requires some forethought.
You should follow these guidelines to get the best deal on a commercial vehicle loan.
There are many more expenses outside the monthly car payment to finance a company car. Consider the total upfront and recurring costs associated with vehicle ownership and maintenance when deciding what is feasible for your company.
The business budget includes fuel, taxes, insurance, down payment, monthly payment, lender fees, annual registration, maintenance, and many more.
Your personal and business credits have a major role in deciding whether you are eligible for certain benefits. Bankruptcies, tax liens, and court judgments are just a few examples of negative credit events that lenders may look for when evaluating a business's credit history.
If your company's credit isn't good enough, you might not be able to receive a loan at a reasonable interest rate. Therefore, it's a good idea to examine your company's credit report before asking for financing so that you can see where you stand and take steps to enhance your score.
If your company's credit isn't strong enough to get the commercial vehicle loan you need, the owner may be able to guarantee the loan. To help with the financing decision, an owner's guarantee can include the owner's personal credit history.
However, doing so means taking responsibility for the car's payments. In addition, if you skip a loan payment or the firm fails on the loan, it could harm your credit.
Depending on the vehicle you intend to buy, you may need to go through a specific type of dealer or be able to work with a specific lender.
Commercial vehicle loans typically fall into one of the two categories given below:
(i) Business car loan: You can choose business car loans if you purchase vehicles under 2.5 tons or 5,000 pounds.
(ii) Equipment loan: You can opt for equipment loans when purchasing heavy-duty vehicles that weigh 2.5 tons or more.
In addition, some vehicles aren't acceptable to lenders. For instance, some lenders may refuse to finance if a car is more than five years old or has more than 75,000 miles on it. Therefore, the loan amount you require and the lender's ability to verify the vehicle's intended use are both important information.
To properly deduct the car and its costs from your taxes, you should know the IRS's rules for using a car for work. The Internal Revenue Service classifies certain automobiles as business vehicles, even though they are used for personal and professional reasons, only under very specific conditions.
Be sure to have a basic familiarity with the IRS Guidelines for Business Use of a Car if you intend to claim the vehicle and deduct the related expenses on your taxes. The Internal Revenue Service classifies certain automobiles as "business automobiles," even if they are also used for personal transportation. However, only certain types of automobiles and related expenses are tax deductible.
The qualifications needed to get a loan will change from one lender to the next. Comparison shopping for a small business loan is the best way to assess your eligibility, compare different loan offers, and select the best suits your company's needs.
The lender will want to look at more than just your credit history when deciding whether or not to provide you with a loan. You may require forms and paperwork such as tax ID, business plan, annual gross sales, annual net profit, outstanding obligations, recent business tax return, and personal tax return. After reviewing your application, the lender can decide whether to grant you funding.
After getting the loan approved, you will have to sign the paperwork. Before signing any forms, ensure you fully grasp the loan terms and conditions. You may also wish to have a consultant or attorney review the paperwork.
The time it takes to get funded after signing a loan document varies from one lender to the next. When you sign and submit the loan documentation to the bank, it typically takes a few days to weeks to get the funds. As a result, it may be some time before we hear back from the SBA. Online loan services typically boast the quickest turnaround times.
Bank loans for smaller businesses tend to have more reasonable interest rates. Check with the bank where you already keep your company's finances to determine the interest rate it will provide you on a business auto loan. Some of the best banks that offer business auto loans and the APR they offer are shown below:
| Lender | Best for | APR for used cars | APR for new cars | Starting loan amount | Loan terms |
|---|---|---|---|---|---|
| Bank of America | Business owners who need time to choose the best vehicle | 5.59% | 5.49% | $10,000 | 48 - 72 months |
| Ally Bank | Flexible auto leases and no collaterals required | 5.06% | 5.03% | $5,000-$100,000 | Up to 75-months |
| Capital One | Businesses with more than 2 years of experience | Start from 2.74% | Start from 2.74% | $10,000 | Up to 60-months |
The loan rates vary based on the lending partners, loan terms and credit score.
Although the interest rates from these lenders are higher than those from banks, they can make sense if you either can't be approved for a loan from a bank or need cash immediately.
| Lender | Best for | Maximum loan amount it offers |
|---|---|---|
| Balboa Capital | Instant financing for commercial trucks | $500,000 |
| Crest Capital | Trucks and specialty vehicles that banks are hesitant to insure | $1 million |
| National Funding | New businesses or borrowers with low credit scores | $150,000 |
The standard formula to calculate the monthly interest on your car loan is given below:
Monthly interest = (Interest rate / 12) × Loan Balance
For a $60,000 loan balance with a 4% interest rate, the monthly interest will be:
Monthly interest = (0.04 / 12) × $60,000 = $200
If you are looking for a business auto loan, you can easily get it by following the process given below:
Choosing the appropriate vehicle includes finding a vehicle that is suitable for your company's demands and acceptable to your company's financing agency. In the case of automotive financing, for instance, many financial institutions place limits on the vehicle's age and mileage before approving a loan.
One option for financing company vehicles is to approach a bank with which your firm already has a working connection and ask about business auto loans. However, just as with other forms of business loans, comparing rates can help you save money. Analyze the annual percentage rate (APR), other fees charged by a lender, and the terms of any financing offered. You'll need additional funds if it doesn't cover the full price of the car, including fees like taxes and registration.
Different financial institutions will have unique application processes. For example, obtaining a business license, a tax identification number, and details about the company's owners could be time-consuming and paper-intensive. Alternative lenders may have a quicker application process but charge higher interest rates if you need a loan quickly.
Lenders may provide options for loans or business auto leases. If you intend to own the vehicle eventually, financing may be an option to explore. A business auto lease will be useful in the following cases:
Auto lease payments are typically lower than loan installments, which is good news if you're worried about how to get a car into your operating budget. Depending on your location, over the repayment period, you may also be able to spread the sales tax. However, insurance costs may increase if you lease rather than buy.
If your company values keeping up with the latest vehicle models, leasing allows you to upgrade after your contract. If the leased car doesn't meet your business's requirements, you can return it and lease something else, among other possibilities.
The leasing agreement will specify the maximum number of miles you can drive and whether or not you can make minor modifications, such as wrapping the exterior. However, buying could be the best option if you want to make major modifications to the vehicle or drive it till it breaks down.
When looking for an alternative to a company auto loan, consider the following options in addition to a business auto lease:
Purchasing a company vehicle can be financed with money through a business line of credit, term loan, or Small Business Administration loan. However, depending on the specifics of your firm, investing such a large chunk of your working capital into a vehicle may not be the best course of action.
You should look into a consumer auto loan if you either don't qualify for a company auto loan or plan to use the vehicle for personal purposes more often than for business. Although this won't help you in the long run (like creating business credit), low credit or not, it's not hard to get a personal auto loan.
A personal loan for business needs can be used for everything the business needs, including purchasing vehicles. However, due to their higher interest rates, these loans should only be considered a last alternative for financing a car purchase for a business.
Obtaining a business auto loan could be the most practical solution if you require financing for a vehicle intended for business purposes. Before directly approaching financial institutions for loans, you should have a better knowledge of the APR that each bank offers and also about the alternative lenders. It's important to shop around for auto financing, whether you're buying a car for business or personal purposes. Through your careful approach, business auto loans are always available for you.
It all relies on various criteria, including the length of time you plan to keep the car, the size of your budget, and the number of miles you anticipate driving each year. Using a car for an extended period is more cost-effective to take out a loan. Although monthly payments for a loan may be lower than for a lease, the former can save businesses money on insurance.
Yes, from some loan companies. In contrast, business owners with low credit histories might anticipate paying higher interest rates and hence larger monthly payments. In addition, borrowers with lower credit ratings may also be forced to make larger down payments.
When applying for a commercial vehicle loan, you will typically be asked to provide a personal guarantee. However, in some instances, a personal guarantee might be avoided if you have good credit.
The answer is yes, a business can provide financing for a car loan.
Depending on the lender, you may need to submit identity proof, articles of incorporation, business license, Employer Identification Number (EIN), bank statements, and cash flow statements to secure a commercial vehicle loan.
No. Some banks even have a "no down payment" option for the most creditworthy borrowers. However, a vehicle financed with no down payment will have higher monthly payments. And a greater chance of becoming "upside-down" when you owe more on the car than it is worth.
Compared to conventional bank loans, SBA loans' conditions and interest rates are far more favorable. It's possible that acquiring a car loan from an SBA recommended lender might be quicker than from a standard SBA lender because preferred lenders have more freedom in making lending choices.