9 Things to Know About Small Business Auto Financing
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Are you looking for a new vehicle to use for business in 2020? If so, there are a few things you should know. You’ll find choosing a vehicle and getting small business auto financing works a bit differently than getting new wheels exclusively for your personal use.  Keep these nine things in mind before signing a new vehicle financing contract for your business.

  1. How Small Business Auto Loans Work

Although you might have experience with a personal auto loan, small business auto loans aren’t quite the same.

A business might get a  business auto loan, also known as a commercial auto loan, to buy the cars, trucks, or SUVs needed for business purposes. These purposes could include:

  • Delivering products
  • Transporting staff to customers
  • Transporting customers to different locations (ie. real estate agents)
  • Carrying materials and goods to job sites

While commercial auto lenders could loan up to 100% of a new vehicle’s value, they’re less likely to do so for a used vehicle. When you finance your business vehicle with a loan, you’re the legal owner. The lender gets registered as a “lienholder” while you make payments on the loan.

As with a personal auto loan, you’ll make payments as agreed for a set term or time frame until the loan gets paid off. Then the lender removes the lien and your business owns the vehicle free and clear.

According to The Fed Report on Employer Firms Small Business Credit Survey, 82% of business auto and equipment loans get approved. Interestingly, the survey also found that loan applicants waited for the longest to get approvals from the big banks and small lenders. Online lenders approved loans the fastest. So if you’re in a hurry to get small business auto financing, consider contacting us today.

  1. How Small Business Auto Leases Work

Small business auto leases work very similarly to personal auto leases. Yet they’re not exactly the same. For example,  not all auto dealers offer commercial lease options if you’re looking for more than one business vehicle. So be sure to ask about this (called fleet leasing) before looking at leasing a new work vehicle.

As with a loan, when you lease a vehicle, you agree to make regular payments for a set period of time. However, your payments are based on the depreciation or loss of value of the vehicle over that time.  And making payments on depreciation is less than making payments on the total value of a vehicle. That’s why, like the Kelley Blue Book states,  your payments are usually lower for auto leases than they might be for business auto loans.

During the lease term, keep in mind that your annual mileage gets limited to a set amount. If you drive it more than that, you’ll pay extra for every mile. Additionally, you could face a “wear and tear” charge for bumps, scrapes, dings, and stains when you lease a vehicle for business.

Also, when you lease a vehicle, your business does not own the vehicle. At the end of the lease, however, you will have the option to “buy out” the lease and take ownership of the vehicle.

  1. Deciding to Buy or Lease

Take time to consider the purpose of your business vehicle before choosing your financing.

The decision to buy or lease a vehicle for your business depends on several things, including your cash flow and the purpose of the vehicle. Ask yourself these four questions to help choose between buying or leasing your next business vehicle.

  1. How long will my business use this vehicle? If you need a customized, special vehicle and expect to keep it for the long term, a car loan could be better.
  2. How much will it get driven? If you expect to exceed the annual mileage limitations a lease could be costly.
  3. Do you want/need a shiny new vehicle every few years as part of your business’ image without the financial commitment of buying a vehicle? If so, a leased vehicle could be a better option.
  4. How’s your cash flow? If money is tight, your business might find it easier to manage a lower lease payment instead of a higher auto finance payment.

It’s also important to understand that if you lease, your balance sheet shows an expense without a corresponding asset. This is because you don’t own the vehicle.

  1. Using SBA Programs for Business Auto Credit

If you’ve been in business for any length of time, you know that the SBA (Small Business Administration) Loans offers business owners some great financing options with low rates.

Even though they don’t offer specific auto financing for business owners, programs like their 7(a) programs could help you finance a vehicle.

However, you might find it tricky to qualify for an SBA loan.  They’re often better suited to borrowers with established, strong credit. Also, it can take some time and a whole lot of paperwork to get approved for the loan.

  1. Available Tax Deductions for Small Businesses

Did you know you getting small business vehicle financing could offer a tax benefit? It’s true. You could get a tax deduction for your entire car lease payments, depending on the percentage of time you use it for business purposes. However, only the interest portion of an auto loan payment offers a tax deduction as a business expense

Whether you lease or finance a vehicle for business, it could be eligible for a tax writeoff for depreciation and accelerated depreciation. Give your tax advisor a call to discuss the best option for you.

And you should know, too, that you could possibly claim this expense on your personal auto financing as well if you use your vehicle for business at least 50% of the time.

By the way, if you’re using your personal vehicle for business purposes you might want to look into business auto insurance. This could protect you against potential financial responsibilities should the need arise. Again, talk to an expert about your specific situation.

  1. Financial Info You’ll Need to Get Your Auto Business Loan

As with most borrowing options, car lease applications and car loan applications usually require several forms of business and personal financial documents and verification. Expect to provide the following information with your application:

  • Verification of down payment if you have one
  • Business license
  • Partnership agreement
  • LLC/Articles of Incorporation documentation
  • EIN (Employer Identification Number)
  • Business tax returns
  • Bank statements
  • Cash flow statements
  • Personal credit score/report (if you have little or no business credit)
  • Social security number (if you’re applying as a sole proprietor)

True, you might not get asked for all of these documents. But getting this information together before starting an application for a new loan or lease could make the whole process go faster.

  1. Personal Guarantees & Business Financing

Lenders often ask business owners to provide personal guarantees for car loans or other types of small business loans. Offering a limited or unlimited personal guarantee for a business loan means that if your business can’t pay back the loan, the lender could seize your personal property to sell to pay off the loan.

Lenders ask for personal guarantees to reduce their own risk of not getting paid for the money they’re lending. And although a business auto loan secured against the vehicle should help reduce their risk, it’s possible you could still get asked to sign a personal guarantee. 

If you prefer small business auto financing without a personal guarantee, consider alternative financing such as an unsecured business line of credit.

  1. Where to Get Financing for a New Business Vehicle

It’s possible to get small business auto financing from a variety of sources including:

  • Car dealerships
  • Banks
  • Credit unions
  • Alternative/online lenders
  • Private lenders

Each of these lenders come with their own set of pros, cons, requirements and features. If you’re a time-strapped business owner looking for a fast, easy auto finance loan for your business, consider an online lender.

  1. Getting Business Vehicle Financing With Bad Credit

Does your business have bad credit? Or maybe no credit history at all? If so, you might think you can’t get financing for a new business vehicle.

If you’re reluctant to apply for a business auto loan or lease because you worry your business credit isn’t good enough, you should know that lenders will look at your personal credit. And if that’s going to hold you back as well, you could have another option.

Alternative financing could be your answer. Yes, it could be possible to get financing for a new vehicle with a bad credit loan or business line of credit. Contact us today to discuss your options.

Never before have business owners had access to such a wide range of small business auto financing options. However, don’t get overwhelmed by the choices. Save time and hassle by contacting us today to discuss the best options for financing your next business vehicle.


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