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How to Get a Business Auto Loan

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If you need to finance a vehicle for commercial use, a business auto loan might be your best option.

Unlike a consumer auto loan, business auto financing can offer the benefits of reducing your personal liability and increasing your tax benefits. Plus, auto loans require you to use your vehicle as collateral, so they are generally more affordable than unsecured small business loans.

How business auto loans work

It takes some planning to find a business loan that’s both affordable and meets your operational needs.

Following these steps can help you find the right auto loan for your business:

1. Set a budget

The total cost to own a business vehicle includes much more than just an auto loan payment. When determining what’s affordable, review your business budget to cover all of the one-time and ongoing costs of owning and operating the vehicle:

  • Down payment
  • Monthly payment
  • Lender or dealer fees
  • Taxes
  • Insurance
  • Annual registration
  • Maintenance
  • Fuel

2. Review your credit

The condition of both your personal and business credit can have a direct impact on what you qualify for.

Lenders may review business credit files for things like bankruptcies, tax liens or legal judgments. If your business credit isn’t strong enough to qualify for a loan that fits your budget, your credit file may need to be improved. Before applying, check out your business credit score to identify areas for improvement and potentially qualify for better terms.

If your business credit isn’t good enough for the commercial auto loan you want, you may be able to qualify with an owner’s guarantee. An owner’s guarantee helps by bringing your personal credit onto the lending decision. But it also requires you to take on financial liability for the vehicle. Plus, your personal credit can be negatively impacted if a loan payment is missed or if the business defaults on the loan.

3. Decide on a vehicle

The type of vehicle you plan to purchase can determine which loan type you qualify for, which type of seller you need to buy from and whether or not certain lenders will work with you. Before shopping around, you’ll need to determine what kind of vehicle your business needs. You’ll likely have to choose between one of these two commercial vehicle loan types:

  • Business car loan: For vehicles under 2.5 tons (5,000 pounds)
  • Equipment loan: For heavy-duty vehicles weighing 2.5 tons or more

Additionally, lenders have restrictions on certain types of vehicles. For example, some lenders won’t finance a vehicle over five years old or 75,000-plus miles. The lender will also need to know the loan amount you need and may want to verify the purpose you’ll be using the vehicle for.

If you plan to claim the vehicle and related expenses for tax purposes, make sure you have a general understanding of IRS Guidelines for Business Use of a Car. According to the IRS, a vehicle that is used for both personal and business purposes can be considered a business vehicle, but there are strict guidelines on which type of vehicle and what type of expenses qualify for a tax deduction.

4. Apply to lenders

The requirements to qualify will vary from one lender to the next. Shopping around for a small business loan allows you to see what you can qualify for and choose the offer that works best for your business.

In addition to credit files, the lender will want to examine certain details of your business.You may need to provide any or all of the following forms and documentation:

  • Business plan
  • Tax ID
  • Annual net profit
  • Annual gross sales
  • List of outstanding obligations
  • Most recent business tax return
  • Most recent personal tax return

Once you’ve completed your application, the lender can make its decision to approve or decline the financing. The turnaround time from application to decision varies between lenders, but some will respond within as little as one business day.

5. Sign on the dotted line

Once approved, you’ll need to sign the loan documents.

Before signing, review the documents thoroughly and make sure you understand the loan terms. You may even want a consultant or attorney to review the documents.

The timeline from signing to funding may be different depending on your lender. With banks, you can expect to receive your loan between a few days and a few weeks from the date you sign and submit the loan documents. The SBA may take several months. Generally, online lenders promise the shortest timeline.

Where to find a business auto loan

Bank of America

Starting APR 2.49% Amount financed $10,000+ Loan terms 48 – 72 months

Bank of America’s small business loans are geared toward businesses with significant revenue. To qualify, you only have to be in business for a minimum of two years, but you’ll need to show proof of $250,000 or more in annual revenue.

Once an applicant is approved, Bank of America auto loan rates are locked in for 30 days, which gives you the opportunity to shop around for a vehicle.

As an added benefit, there’s no application fee, qualified borrowers get free monitoring of their Dun & Bradstreet business credit report and score, and a relationship discount is available of up to 0.50% for customers who are enrolled in the Preferred Rewards for Business program.

Wells Fargo Bank

Up to 100% financing Up to 84-month loan terms Manufacturer subsidy programs available

Wells Fargo can be a good choice for businesses looking to finance new and used trucks and trailers, as well as a variety of specialty vehicles. In order to qualify for the best rates, borrowers need a personal credit score of 760 or higher, but business credit requirements are not disclosed.

While this lender no longer offers Equipment Express Loans, the bank can be a good option for borrowers who are interested in using SBA lending for equipment purchases, with the flexibility of repayment terms of up to 10 years.

PNC

Up to $3,000,000 in financing  Up to 72-month loan terms 0.05% rate discount for qualified veterans

A secured PNC loan can be good for businesses that need a large amount of financing, since the bank offers 100% financing for up to $3,000,000 in purchases, depending on loan type. Like Wells Fargo, PNC is also an SBA lender.

PNC will review your Equifax Commercial Credit Report to make the loan decision. Qualifying for one of its business auto loans generally requires three years in business and you must be a PNC banking customer before applying. To apply online, you have to be a Business Banking customer.

If you wish to finance a vehicle for business use, it must be new; however, PNC does offer lending for used passenger vehicles, too.

Ally Bank

Personal credit may not be considered Up to 75-month loan terms Financing for heavy-duty trucks with up to 700,000 miles

Ally can be a good option for business owners who want to avoid having their personal credit impacted by a business loan. Ally offers “business name only” financing or Third-Party Guaranty, which allows you to choose between levels of personal liability that suit you.

Additionally, financing is available for vehicle modifications, and heavy-duty truck loans can be used for trucks with up to 700,000 miles.

Before applying, note that Ally’s non-lease financing is only available for vehicles that are used exclusively for business purposes and not for any personal use.

Ally’s commercial auto loan rates are not advertised upfront.

Capital One

$10,000+ Amounts financed Up to 60-month loan terms Minimum requirement of 2 years in business

While some banks require three years in business with significant revenue, Capital One loans are available to businesses that have been in operation for a minimum of two years, as long as you have an open business checking account.

Commercial vehicle financing is available for both purchasing and refinancing, with up to 100% loan-to-value financing and terms of up to 60 months. That five-year term is shorter than repayment periods available from other banks on our list, but a shorter payment term can mean significant savings on interest charges.

Crest Capital

Up to $1,000,000 available Up to 84-month loan terms Financing for private-party purchases

If traditional bank lending doesn’t meet your business needs, consider Crest Capital. Over $250,000 in financing is available through its Mid-Ticket Financing, and some loan options offer up to $1,000,000 in financing, with no mileage limitations or age restrictions, and the option to buy from private sellers.

Loan repayment terms are flexible, with Crest offering a seasonal payment option or deferred payments for qualified borrowers, and terms that extend up to 84 months.

To determine loan eligibility, Crest Capital checks your Dun and Bradstreet credit file and may view additional credit information.

Is commercial refinance possible?

Refinancing a business auto loan can help you reduce your interest rate, your monthly payment, or help you access other terms that meet your business needs.

The best time to refinance an auto loan for better terms is when your business or personal credit have improved, interest rates have dropped or you’ve paid down a significant portion of the loan balance. Just make sure that lender fees don’t outweigh the benefits of your new loan agreement.

Refinancing is available for business loans through many lenders, including Bank of America, Capital one and Wells Fargo, however the same restrictions on mileage and vehicle age may still apply, which could make it challenging to get approved.

Alternatives to business auto financing

Taking out a business auto loan isn’t the only way to finance a vehicle purchase for your business. Commercial leasing or a small business loan can be worth considering, too. Here’s an overview of the alternatives:

Commercial leasing

A lease can potentially provide flexibility you need from a lender. For example, Ally’s commercial financing doesn’t allow for personal use of vehicles, however leasing does. Business car leasing can also make it easier to afford newer and better equipped vehicles and offer better tax advantages for your business.

On the flip side, there are different sets of restrictions with a lease. Leasing can mean being charged if your mileage exceeds a limit set by the lender, and you’ll likely be prohibited from making any permanent modifications to the vehicle.

Small business loans

A small business loan may not require collateral, however that means qualifying might be more dependent on creditworthiness and will likely require the owner to take more personal liability.

Compared with a commercial auto loan, interest rates are generally higher for small business loans, and any loan that isn’t secured by collateral can be more difficult to qualify for.

Business auto loans vs. alternatives  
Commercial auto loan Commercial auto leasing Small business loan
  1. Equity
  2. No mileage limits
  3. Lower rates
  4. Tax breaks on depreciation
  1. Lower payments
  2. Tax breaks on mileage
  3. Mileage limits
  4. Limited modifications
  1. Few restrictions on funds
  2. Equity
  3. Stricter credit requirements
 

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