Business Auto Loans: What They Are and Where To Find Them
Buying a business vehicle can help you meet your customers’ needs, and you might get some tax breaks, too. If paying in cash is out of the question, you could consider a business auto loan, especially if you qualify for low APRs due to excellent credit or being in business for many years.
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’ll usually have one to eight years to pay off your loan. While your loan is open, it will accumulate interest. You can check out our auto loan calculator to get an idea what the payment structure will look like.
Both consumer and business auto loans are a type of secured loan. This means 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 a lower APR or interest rate than unsecured loans.
Business auto loan requirements
Business loan requirements are much more stringent than consumer loans. These 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
In addition, you might also need to meet lender-specific vehicle restrictions. For example, Bank of America will not issue a business auto loan if you’re purchasing 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 small business loan lenders.
When applying for any loan, you may want to check with your current bank or credit union first — some offer ultra-competitive APRs for current account holders. Even so, it’s important to shop around to get the loan that makes the most sense for your business needs.
Business auto loan lenders
Here are some vehicle loan lenders to get your search started (in alphabetical order), along with some of the features offered by each.
Bank of America
If you’ve owned your business for at least two years and bring in at least $250,000 in annual revenue, you may want to consider a Business Advantage Auto Loan from Bank of America.
You could secure an APR as low as 7.09%, and if you join the Preferred Rewards for Business program, you could get an 0.25-0.50% 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 online business auto and equipment loans with a wide range of loan amounts and term lengths — from $50,000 to $1,000,000 and between Information Not Available and Information Not Available months.
Crest Capital could be a great fit if you’re in the market for a used business vehicle. Vehicle age is a common eligibility requirement for business auto loans, but Crest Capital doesn’t have an age limit for the trucks they’ll finance.
It also provides financing for private party sales, rather than just sales through dealerships.
Whether you’re in the market for a business vehicle, tractor trailer or excavator, National Funding may be able to help. This lender offers business auto loans for all sorts of automobiles, including ones that some companies exclude (such as taxicabs).
National Funding also has relatively laid-back eligibility requirements. Your business needs to be just six months old to qualify, and you only need a minimum FICO Score of 575.
Loan terms span from 24 to 60 months and you could get a discount for paying your loan off early.
You’ll have to apply over the phone or in person if you want to check rates on a business auto loan through PNC Bank, but it may be worth the effort.
If you’ve been in business for at least three years, you could qualify for a loan between $10,000 to $250,000. PNC’s maximum loan term of 72 months is also longer than some competitors.
As an added benefit, it posts detailed eligibility requirements on its website, which is rare. This could make it easier for you to decide if PNC is worth pursuing (since it doesn’t offer online applications).
Many lenders require applicants to be in business for at least two years before they will approve a vehicle or equipment loan. If you’ve been in business for less than that, you might still be eligible for a Taycor Financial loan thanks to its new business program.
Business owners looking for a simplified application process may also appreciate the borrowing experience that Taycor Financial has to offer. Businesses requesting less than $150,000 could be approved in as little as two hours, and might only have to fill out a one-page application.
Truist is one of the largest commercial banks in the U.S., and its business auto loans, commercial vehicle and equipment loans come with a $250,000 maximum loan amount. Depending on the type of loan you have, your term will be between 75 and 84 months.
With Truist, you can add an extra 10% to your total loan amount to cover so-called “soft costs,” such as taxes, as well as license, tag and delivery fees. While you’ll end up paying interest on what you tack on, this will reduce your upfront costs.
How to get a business auto loan
The process of getting a business auto loan is similar to getting a consumer auto loan, but you will probably need to provide more 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 80 and a personal credit score of 670 to qualify for the lowest APRs.
3. Choose a vehicle
As mentioned, business auto loan lenders usually have restrictions on the types of vehicles they’ll finance. As such, they will probably ask you for the vehicle identification number (VIN) — or, at the very least, the year, make, model and odometer reading — for the vehicle you want to purchase. Also, the amount of money you apply for depends on your vehicle’s purchase price.
4. Shop for a lender
Depending on the vehicle you need for your business, you may need to target 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, that way you can compare offers without dinging your credit score.
5. Formally apply
Some business auto lenders offer a simplified application process, but for the most part, applying for a business loan is more involved than applying for a consumer loan.
There is no standard application process, but you should be prepared to provide documents such as your business plan, financial statements, business tax returns and your Articles of Incorporation.
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 huge bite out of your cash reserves. Business auto loans can be easier to manage, since they allow you to spread out the vehicle’s cost over time.
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 semitrucks.
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, your business might only be legally liable for the debt, not yourself personally.
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. And things can get extra complicated if you use your vehicle for both business and personal use. We recommend you contact a tax professional for more information.
Business auto loans vs. business auto leases
Many lenders offer business auto leases in addition to business auto loans. Just like a normal 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.
May provide more flexibility. Your vehicle needs may evolve as your business grows. Leasing gives you the opportunity to swap your vehicle at the end of your contract.
Lower monthly payments. Leasing may provide a lower monthly payment than financing.
Higher insurance costs. Leasing contracts usually mandate that you carry 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, expect to pay a penalty. The same is true for 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 could purchase a car using a business line of credit, which is a type of revolving credit that you can borrow from as needed, akin to 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 provide a lump sum like a loan, you could run the danger of getting in over your head in debt if you continue charging. On the flip side, using a line of credit responsibly can be an effective strategy for building business credit.
Personal loan: You might be able to use a personal loan for business, but this can be risky. As a whole, personal loans are easier to qualify for, but you will be held individually liable if you can’t make your payments (instead of your business).