Business Auto Loans: Where To Find Them and What You’ll Need
- A business auto loan lets you avoid personal liability and keep your own finances separate.
- Business car loan requirements can be a little tougher than for consumer auto loans.
- Alternatives to business car loans include business auto leases and SBA loans.
Buying a business vehicle can help you meet your customers’ needs, and you might get some tax breaks, too. If paying with cash on hand isn’t an option, you may want to consider a business auto loan, especially if you qualify for low APRs due to excellent credit or a long history in business.
What is a business auto loan?
A business auto loan (also called a commercial auto loan) is similar to a standard consumer auto loan.
First, you apply for the loan. If you’re approved, the lender will pay for your vehicle (or part of the price, up to your approved loan amount). Then, you repay what you borrowed, with interest, in monthly installments.
You typically have one to eight years to repay your loan, including the interest. You can check out our auto loan calculator to get an idea of what the payment structure will look like.
Both consumer and business auto loans are types of secured loans. The lender uses the vehicle as collateral — and can repossess your vehicle if you don’t hold up your end of the deal.
Because the lender knows it can recoup some of its losses through repossession, secured loans tend to have lower APR or interest rates than unsecured loans.
Business car loan requirements
Business loan requirements for financing cars can be stricter than those for consumer auto loans. They vary from lender to lender, but usually you will need to:
- Use the vehicle for business purposes
- Be in business for a specific length of time
- Earn a certain amount of annual income
- Provide business tax returns and other documents related to your business
- Prove your creditworthiness through your business credit report
Additionally, you may need to meet lender-specific vehicle requirements. For example, Bank of America won’t issue a business auto loan for a vehicle that’s more than five years old.
Where to find a business auto loan
You can find business auto loans through brick-and-mortar banks and credit unions, as well as online lenders that offer other types of small business loans.
When applying for any loan, you may want to check with your current bank or credit union first, since some have ultra-competitive APRs for current accountholders. Even so, it’s essential to shop around to find the loan that best suits your business needs.
Here are some vehicle loan lenders to get your search started (in alphabetical order), along with some of their features.
Bank of America
- 5.79% starting APR
- APR discount for enrolling in the Preferred Rewards for Business program
- Provides business credit scores at no additional charge
If you’ve owned your business for at least two years and want to buy a vehicle that’s at most five years old, with less than 75,000 miles and with a value of at least $10,000.00, you may want to consider a Business Advantage Auto Loan from Bank of America.
You could secure an APR as low as 5.79%, and if you join the Preferred Rewards for Business members program, you could get a 0.25% to 0.50% APR discount on top of that.
Bank of America also offers other unique perks, such as free business credit scores and a 30-day rate lock program, so you can take your time choosing the perfect business vehicle.
Crest Capital
- Offers fleet financing
- No model-year restrictions for used trucks
- Specializes in private party financing
Crest Capital offers online business auto and equipment loans with a wide range of loan amounts and term lengths.
For vehicle loans of up to $250,000, you can use the “application-only” process, which checks your eligibility via public records, without the need for a full application. Terms range from 24 to 72 months.
Large-scale equipment financing is available for loans ranging from $50,000.00 to $1,000,000.00, with terms between 24 - 84 months. For this, you’ll need to complete a more extensive application, including financial statements and tax returns.
Crest Capital could be a great fit if you’re in the market for a used business vehicle. Low vehicle age is a common requirement for business auto loans, but Crest Capital doesn’t have age or mileage limits for the vehicles it’ll finance.
It also provides financing for private party sales, not just sales through dealerships.
National Funding
- Low minimum credit score requirement
- Eligible for a loan after only six months in business
- Financing for commercial vehicles, heavy equipment and more
Whether you’re in the market for a business vehicle, tractor-trailer or excavator, National Funding is worth a look. This lender offers business auto loans for a wide range of vehicles, including ones that some companies typically exclude, such as taxicabs.
National Funding also has relatively laid-back eligibility requirements. Your business must be at least six months old to qualify, and you only need a minimum FICO Score of 575.
Loan terms span from 24 - 60 months, and you could get a discount for paying your loan off early.
PNC Bank
- Finance up to 100% of the invoice
- Physical branches in certain states
- Loan terms up to 72 months
You’ll have to apply over the phone or in person if you want to check rates on a PNC Bank business auto loan, but it may be worth the effort.
If you’ve been in business for at least two years, you could qualify for a loan between $10,000.00 and $250,000.00. PNC’s maximum loan term of 72 months is also longer than some competitors.
To apply, you’ll need to provide personal and business financial information for each company owner, including personal and business tax returns and financial statements.
Taycor Financial
- Simple application process
- May be available to newer businesses
- No age or mileage caps
Taycor Financial has programs to help businesses with small to medium-sized fleets grow. Companies in business for at least two years may be eligible for the new business program.
Businesses requesting up to $200,000 could be approved in a few hours and may only need to complete a one-page application. Larger amounts require a comprehensive financial package, including financial statements, bank statements and tax returns, in order to apply.
Truist
- Can finance up to 100% of vehicle purchase price, plus 10% for “soft costs”
- Apply online or in person
- Loan terms up to 84 on commercial vehicle and equipment loans
Truist is one of the largest commercial banks in the U.S., and its business auto, commercial vehicle and equipment loans let you borrow up to $250,000.00. Depending on the type of loan you have, your term may be up to 84.
With Truist, you can also add an extra 10% to your total loan amount in order to cover so-called “soft costs,” such as taxes and the license, tag and delivery fees. While you’ll end up paying interest on what you tack on, this will make your upfront payment easier.
How to get a business auto loan
The process of getting a business auto loan is a lot like with a consumer auto loan, but you’ll probably need additional documentation. When you’re ready, follow the steps below.
1. Evaluate your budget
Before you take out a loan, you should review your business finances to make sure you can fit your monthly loan payment into your budget. Missing payments or defaulting on debt can negatively impact your business credit score, making it harder to qualify for future loans.
2. Review your credit
You should also review your personal credit score and your business credit score to get an idea of whether you meet a lender’s loan requirements. Typically, you need a business credit score of at least 76 out of 100 and a personal credit score of 661 to qualify for the lowest APRs. You can check your score and monitor your credit for free via LendingTree Spring.
3. Choose a vehicle
As mentioned, business auto loan lenders usually have restrictions on the types of vehicles they’ll finance. They’ll probably ask you for the vehicle identification number (VIN), or at the very least, the year, make, model and odometer reading. Also, the amount of money you will apply for is based on the vehicle’s purchase price.
4. Shop for a lender
Depending on the vehicle you need for your business, you may need to look for specialized lenders. For example, if you need a semitruck, you’ll need to seek out lenders that offer semitruck financing, as not all of them do.
Shopping around before committing can also help you get a loan at a competitive rate. Try to target lenders that have a prequalification process, so you can compare offers without affecting your credit score.
5. Formally apply
Some business auto lenders use a simplified application process. But that said, applying for a business loan is usually more complex than applying for a consumer loan.
There’s no standard application process, so be prepared to provide a wide array of documents, such as your Employer Identification Number (EIN) or Social Security number, business plan, financial statements, business tax returns and articles of incorporation, where applicable.
Benefits of a business auto loan
Financing your business vehicle with a business auto loan can come with benefits, like:
- Increased liquidity: Purchasing a business vehicle outright — let alone a fleet of vehicles — can take a massive bite out of your cash reserves. Business auto loans can help your business grow by freeing up your cash flow for other purposes.
- Separates your finances: Keeping your personal finances and business finances separate can make bookkeeping and filing taxes easier.
- Equipment financing: Many business auto loan lenders also offer equipment financing, which can help business owners buy specialty commercial vehicles, such as upfitted work trucks.
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May protect your personal assets: Depending on your business entity and whether your lender included a personal guarantee in your loan contract, taking out a business loan can reduce your personal liability exposure.
If you default on a business auto loan, only your business may be legally liable for the debt, rather than you personally.
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Potential tax benefits: Although this may be more related to how you use your vehicle rather than how you finance it, owning a business vehicle can come with tax benefits.
For instance, you might be able to write off the interest on your business auto loan. Section 179 of the U.S. tax code also provides opportunities to write off your business vehicle’s depreciation.
You must keep detailed records to take advantage of these tax benefits. Things can become even more complicated if you use your vehicle for both business and personal purposes. We recommend consulting a tax professional for further information.
Business auto loans vs. business auto leases
Many lenders offer business auto leases in addition to business auto loans. Just like a standard lease, you will “rent” the vehicle for a length of time and then return it when the lease is up.
Here are some pros and cons of auto leasing to determine if it’s a better fit for you.
Pros
- May provide more flexibility. Your needs may evolve as your business grows. Leasing gives you the opportunity to exchange your vehicle at the end of your contract.
- Lower monthly payments. Leasing may have a lower monthly payment than financing.
Cons
- Higher insurance costs. Leasing contracts usually demand you carry insurance liability limits of at least 100/300/50. This rule doesn’t apply when you finance.
- Mileage restrictions. Most leases come with a mileage cap. If you go over that cap, you can expect to pay a penalty. The same applies to excessive wear and tear.
Alternatives to business auto loans
SBA loan
Loans issued through the Small Business Administration (SBA) are partially backed by the government. That makes them easier to qualify for, since the government is taking on some of the lender’s risk.
SBA loans (the standard SBA 7(a) loan, specifically) can be used for almost any business-related expense. This type of loan offers amounts up to $5 million, and terms for equipment purchases are typically 10 years.
Business line of credit
You can purchase a vehicle using a business line of credit, a type of revolving credit that allows you to borrow as needed, much like a credit card. You can borrow up to your credit limit, and you only pay interest on what you borrow.
However, since a line of credit doesn’t give you a lump sum like a loan does, you could run the risk of getting in over your head in debt if you continue charging. On the other hand, using a line of credit responsibly can be a good strategy for establishing business credit.
Personal loan
You may be able to use a personal loan for business purposes, but this can be a risky approach. As a whole, personal loans are easier to qualify for, but you — not your business — will be held personally liable if you can’t make your payments.
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