A business auto loan can help you join the ranks of owner-operators or grow your fleet. Used strategically, a business auto loan can accelerate business growth and profitability. Unlike personal auto loans, business auto loans can reduce liability and increase tax benefits. With a business auto loan, the vehicle is considered collateral. This can make it easier to secure the loan and also get a lower interest.
What is a Business Auto Loan?
A business auto loan, also called a commercial auto loan, is a form of financing to purchase a company vehicle. This can be everything from a standard passenger car or truck to a delivery van or semitruck. For heavy vehicles, you’ll generally need a specialized type of business auto loan, like a commercial truck loan.
Commercial trucks cost an average of $100,000 — more than most people can afford in cash. For that reason, commercial auto loans are essential for freight and commercial companies to start or grow a fleet.
What Can A Business Auto Loan Be Used For?
A business auto loan can be used to purchase vans, cars or light trucks. You can also use a business auto loan to refinance a business vehicle at a lower rate. For large commercial vehicles, you may need a commercial truck loan.
4 Steps To Get a Business Auto Loan
If you want to get a business auto loan as a funding option, there are four steps to get started.
Set and Review the Budget
Your budget will encompass all business expenses related to your vehicle — from the downpayment and monthly payment to lender fees and taxes. You’ll also need to account for insurance costs, annual registration, maintenance and fuel costs. Taken together, these are the primary expenses you’ll be faced with monthly and yearly. If you hire drivers or other staff, that will also affect the bottom line. But as an owner-operator, vehicle and fuel costs will be the biggest expenses.
It’s worthwhile to do a break-even analysis to see how many monthly loads or miles you’ll need to drive to break even to gauge profitability. A business auto loan can help but shouldn’t be relied on fully to sustain a business.
If the break-even point is only a few loads a month, you can be reasonably confident that you’ll be able to sustain the business. If you can build up some local or regular clients, that can provide a foundation to sustain the business and ensure profitability.
Check Your Credit Score
Your individual and business credit score can impact both the amount of the loan you’ll qualify for and the interest rate. The better the credit score, the lower the interest rate and the higher the potential loan amount available. Beyond a single number, lenders will look into your business credit file for tax liens, legal judgments or bankruptcies.
Your individual credit score can be considered if your business doesn’t have a high enough credit score to qualify for the loan you need. In that case, an owner’s guarantee will mean your individual credit score is taken into consideration. In that case, you’ll have to take on financial liability for the vehicle. And in this case, your performance on the loan — and any late payments — will impact both your personal and business credit scores.
Decide What Commercial Vehicle You Want
Vehicle types vary widely and can determine the types of loads you’ll be able to take. A business car loan will allow you to purchase a vehicle under 2.5 tons, while an equipment loan or commercial equipment loan will allow the purchase of vehicles of more than 2.5 tons.
Many business auto loans of all types have age or mileage restrictions on vehicles. For example, you may not be able to purchase a vehicle that is more than 5 years old or with more than 75,000 miles. You’ll want a vehicle that has had regular maintenance and is well-maintained. You can request a quote from the dealer and include that with your auto loan application.
Apply To Lenders
You can apply to a variety of lenders, including banks, credit unions, alternative lenders or online lenders. You may be able to qualify for a working capital loan. Some lenders offer same-day funding.
Look for a lender with a track record of success and an excellent reputation. Generally, banks and credit unions will offer better interest rates and terms but can be more difficult to qualify for.
If you choose to go with an alternative lender or online lender, be sure to speak to other truckers about their experience, and read all terms carefully before signing.
What Do Lenders Look At?
Each lender will have different criteria when applying for an auto loan. Lenders will require the business credit score and may also ask for your personal credit score. They also may ask for additional business information. Common requirements lenders look at for approval include:
- Most recent business tax return
- Most recent personal tax return
- Business plan
- Tax ID (employer identification number or Social Security number)
- Annual gross sales
- Cash-flow statements and a balance sheet
- Recent bank statements
- List of outstanding obligations
Increase Profitability with a Business Loan
Whether it’s your first business vehicle or your 10th, a commercial truck loan can help to expand your company’s reach. Be sure to do your due diligence and prepare ahead of time so you can secure the best available option. With a well-maintained vehicle and favorable terms, a business auto loan can offer a foundation to increase profitability and build your business.
FAQ
To apply for a business auto loan, you may need financial statements and a balance sheet, business bank statements, tax identification and recent tax returns as well as your business plan and outstanding debt. The exact documents required will vary by company.
Yes, it is possible to get a business auto loan if you have no credit or bad credit. If your personal credit is good, you can get an owner’s guarantee. If both your personal credit and the business credit need improvement, you can work to first improve them before applying for a business loan, or get a loan that may have higher interest rates and fees.
A business auto loan will show up on personal credit if you take an owner’s guarantee. If the business takes out the loan without an owner’s guarantee, the loan won’t show up on your personal credit report.
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