Owning a vehicle is often essential for small business owners to operate and grow their company. However, purchasing a new or used car, truck, or van can be a major financial burden. This is where business auto loans can help accelerate your company’s success.
Business auto loans allow entrepreneurs to acquire the necessary transportation while spreading the cost over time. Instead of paying the total buying amount upfront, you can take out a loan and make more affordable monthly payments. Interest rates are usually lower for business auto loans than personal car loans since the vehicle is a business asset and collateral.
Whether you need to replace an aging work vehicle, expand your fleet to meet growing demand, or want something more reliable for client visits, a business auto loan simplifies the process. Review financing options from banks, credit unions, and online financiers to find the best rates and terms. You can get rolling and shift your company into high gear with the right business auto loan.
What is a Business Auto Loan?
A business auto loan allows a company to finance the purchase of a vehicle. Just like with a personal auto loan, the car itself serves as a guarantee for the loan. This means the lender can repossess the car if the business defaults on the loan.
Business auto loans typically have lower interest rates than other business loans. This is because the collateral (the car) reduces risk for the lender. Rates and terms vary between lenders, though.
The loan amount can finance up to 100% of the car’s price with some lenders. Others may require a down payment. The lender will also set limits on the vehicle’s age and mileage. Loan repayment terms are usually similar to personal auto loans, often up to 72 months.
To qualify, the lender will look at the business’s credit history, not the owner’s credit. If the business doesn’t have established credit yet, the owner may need to guarantee the loan personally. Then, their personal credit and finances can be impacted if the business defaults.
Business Auto Loan Requirements
The lender will look at a few key things to get approved for a business auto loan.
- First, your business needs to be up and running earning money regularly. Brand-new startups usually don’t qualify.
- The lender will check your business credit reports and scores. They need to be in decent shape. Your credit will likely be evaluated, too.
- Most lenders want to see you’ve been in business for 1-2 years minimum. They’ll look at current financials – bank statements, tax returns, profit/loss statements – to confirm your business earns enough to repay the loan.
- The lender may ask for collateral like equipment or property if your business is brand new or shaky.
- They’ll also assess the business owner’s personal credit and finances as individuals.
- You’ll probably need to put 10-20% down on the purchase price.
- You’ll need to show the lender a solid business reason for needing the vehicle and how you’ll use it.
If you meet the qualifications, have good credit, and provide the right paperwork, you should be able to get approved for a business auto loan.
What Documents Do I Need for Business Auto Loans?
Here is a simple overview of the typical paperwork needed for a business auto loan:
- Proof of Identity – To verify your identity, use a driver’s license, passport, etc.
- Business License – Copy of your official business license.
- Articles of Incorporation – Documents establishing your business entity.
- EIN – Your Employer Identification Number from the IRS.
- Tax Returns – Full business returns for the past 2-3 years.
- Cash Flow Statements – Documents showing the business’ incoming and outgoing money flow.
- Bank Statements – Recent business bank account statements, usually for the past 3-6 months.
The specific documents required can vary by lender. However, having these basic items ready will help cover what most lenders look for when reviewing a business auto loan application. Check with the lender to confirm exactly what they need from you.
Steps To Get a Business Auto Loan
Financing a vehicle purchase through business auto loans has several advantages. The process is relatively straightforward if you come prepared. Follow these key steps to get a business auto loan approved:
- Decide what type of vehicle you need for your business. Consider cargo capacity, passenger room, fuel efficiency, and other features.
- Research business auto loan lenders like banks, credit unions, and online lenders. Compare interest rates, loan terms, and qualifying requirements.
- Check your business credit reports and scores. Make sure they are accurate and in good standing. If not, take steps to improve them.
- Gather required documents like business financial statements, tax returns, business licenses, and personal IDs.
- Complete the loan application providing information on your business, the owners, the requested loan amount, vehicle details, and use of funds.
- Be prepared to make a down payment if required by the lender. Have funds available for taxes, title, and registration fees.
- Work with the creditor if additional documents or clarifications are needed. Get loan approval.
- Shop for the vehicle you need and purchase it. The lender pays the dealer directly.
- Make loan payments on time each month. Keep up vehicle maintenance and insurance.
Where to get a business auto loan?
You have three main options, including online lenders, banks, and alternative lenders. Let’s have a look at each of them.
Banks offer competitive rates as well as flexible repayment terms. But they may limit vehicle age and mileage. Their application process is lengthy, with lots of paperwork. Interest rates can be under 3%, though.
Online lenders have less strict requirements than banks. Their rates are often similar, too. The application process is quicker and easier.
Alternative lenders typically have higher starting interest rates. But they allow older cars with more miles. And they can approve and fund very fast.
So banks are a good option for established businesses wanting low rates. Online lenders provide a smoother process. And alternative lenders work if you need quick funding or have an older vehicle.
Reasons to Get Business Auto Loans
Business auto loans often have lower interest rates than other financing options because the vehicle serves as collateral.
Interest paid on the loan and depreciation of the vehicle can potentially be tax-deductible business expenses.
Making on-time loan payments helps establish a positive business credit history.
Financing preserves capital for other business expenses rather than paying the entire vehicle cost upfront.
Loan repayment terms typically range from 12-72 months, allowing you to tailor payments to your budget.
Approval is based on business credit and finances rather than personal. Easier to qualify as an established business.
You keep vehicle ownership even while financing it, allowing greater flexibility.
Monthly payments remain consistent over the life of the loan, simplifying cash flow planning.
Is securing a business auto loan with a poor credit history possible?
Yes, you can potentially get approved for a business auto loan even with bad credit, but it will be challenging. Your options will be more limited than if you had good credit. Lenders see you as a risky borrower, so that they will charge higher interest rates and fees. You’ll likely have to personally guarantee the loan, meaning they can go after your money and assets if the business defaults.
A good option is looking at alternative lenders specializing in bad credit business loans. Just watch out for predatory lenders with really high rates. Bringing on a co-signer with excellent credit can better your chances since it lowers the risk for the lender.
Before applying, try to improve your personal and business credit scores if you can. This will expand your choices. Making a large down payment on the vehicle is another way to offset the risk from your low scores. Provide as much paperwork as possible to show your business makes enough money to repay the loan.
While challenging, getting a business auto loan with poor credit is doable, mainly if you use collateral or find the right lender. Make sure the high costs and risks make sense for your situation.
Summing It Up
Getting a loan to purchase a vehicle for your business has clear benefits. Business auto loans offer affordable financing and flexible terms and can help build your commercial credit profile.
However, lenders will closely evaluate your business finances, credit, time in operation, and collateral when deciding on approval. Having a solid application with all the right documents can streamline the process.
While business auto loans are easier to obtain once established, startups and newer companies can sometimes qualify, too. Even applicants with poor credit have a chance with the right lender down payment funds and by providing documentation that minimizes risk factors.
A business auto loan provides an accessible path to acquiring an essential business asset. Take the time to research lenders, organize paperwork, and put your best application forward. With preparation and persistence, securing financing for that crucial company vehicle is achievable.