What Is a Business Auto Loan? How to Finance Company Vehicles

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What Is a Business Auto Loan?

A business auto loan is a type of secured loan that companies or individual owners can use to purchase vehicles for business purposes. A business auto loan can be less expensive than an unsecured loan, and its interest costs may be tax-deductible. Business auto loans are also referred to as commercial auto loans.

Key Takeaways

  • Business auto loans are available for financing company vehicles.
  • Like consumer auto loans, they are secured, with the vehicle serving as collateral.
  • When shopping for a business auto loan, compare interest rates, loan lengths, down payment options, and eligibility requirements. 
  • If a business auto loan isn’t right for you, you have some other alternatives.

Main Features of a Business Auto Loan

These are some of the key features to consider when shopping for a business auto loan.

Interest Rates

The interest rates for business auto loans can be fixed or variable and will vary from lender to lender. The rate you’ll qualify for will depend on factors such as the loan amount and the credit history of the business.

Loan Terms

Loan terms, or lengths, for business auto loans can span several years. For example, you may be able to find a loan for a 24-month term or one stretching out as long as 84 months. The longer the loan term, the lower your monthly payments could be, but the more you’ll end up paying overall.

Eligibility Requirements

Qualifying for a business auto loan is much like qualifying for a consumer auto loan, but with some additional requirements. Those often include:

  • The vehicle needs to be for business purposes. 
  • Your business must have been in existence for a certain period of time.
  • The business must also meet the lender’s income and credit requirements.

You will most likely have to provide documentation such as tax returns, relevant business licenses, and profit and loss statements.

Down Payment Options

Some lenders may require that you put down a certain percentage of the vehicle’s selling price. Or, you may be able to borrow the entire price, with no down payment needed. The more you put down, the less you’ll need to borrow, which could save you in total interest charges and may also entitle you to a lower annual percentage rate (APR). 

How to Apply for a Business Auto Loan

Applying for a business auto loan is a relatively straightforward process.

1. Establish Your Needs and Budget

Assess your needs for a new vehicle and look at your budget to determine how much you can afford without overextending your business financially. Consider any taxes and fees you may need to pay for the car and any other costs to maintain it. Our car loan payment calculator can help you determine your likely monthly payments and compare different loans.

2. Research Lenders 

Comparing multiple lenders lets you see what your options are and find the best fit. Auto loans are widely available from banks, credit unions, online lenders, and car dealers, and you can often check their minimum requirements online. The U.S. Small Business Administration (SBA) also backs certain business-related loans in partnership with local lenders. With some lenders, you may be able to get pre-approved to see what rates you would likely qualify for.

3. Choose a Vehicle

Before applying for a loan, choose what type of vehicle your business will need and how much it will cost. Some types of vehicles, such as trucks, are often financed through equipment loans, which can vary in their terms from auto loans. Bear in mind that vehicle prices are often negotiable, and you may have more leverage if you’re buying multiple vehicles rather than just one.

4. Gather Documentation

To speed the process along as much as possible, make sure you have all the necessary documents in hand. The lender will outline what’s needed—in most cases you’ll have to provide proof that your business actually exists, such as tax returns, profit and loss statements, bank statements, and possibly a business plan.

5. Submit Your Application

Work with the lender to complete your application. Make sure you answer every question and provide any additional documentation. 

6. Sign the Loan Documents

If your loan application is approved, you will need to sign loan documents before you receive funding. These documents should cover the loan’s repayment terms and your and the lender’s respective responsibilities. Once they’re been signed, the lender will give you the loan proceeds and you can purchase the vehicle.  

Tips for Improving Your Chances of Getting Approved

Lenders want to know that you’ll be able to repay any money they lend you. You’ll increase your odds of loan approval if you can demonstrate that your business is well managed and responsible in its use of credit. When buying a car (or any expensive piece of equipment) it helps to have a clear rationale for why you need it and how it will help the business.

If your business has a business or commercial credit score or a credit rating, make sure you know it, because the lender will most likely check. Anything you can do to improve your score or rating will also help, although that can take time.

You may also benefit from seeking guidance, either from someone in your finance department (if you have one) or from an outside loan specialist. 

Best Business Auto Loan Providers

Here are three of the best lenders, with information about their loan options and requirements.

Bank of America

Bank of America offers loans as low as $10,000 with APRs starting at 6.99%. Applicants can use the loan to purchase cars, light trucks, and vans. Borrowers don’t need to be an existing Bank of America customer, but those who are enrolled in the Preferred Rewards for Business program may qualify for interest rate discounts.

Balboa Capital

Balboa Capital may be a good choice for newer businesses looking for commercial truck financing. Applicants only need to be in business for a minimum of one year. Other requirements include a minimum credit score of 620 and at least $100,000 in annual revenue. There is an online application and the approval process can take as little as an hour if you submit it during business hours. 

Ally Financial

Ally Financial offers several loan and leasing options. Applicants can opt for traditional financing for commercial vehicles, a closed-end lease with a fixed repayment term, or an open-end lease with flexible terms. Most types of vehicles qualify. Ally doesn’t disclose its loan terms and borrower requirements, so you’ll need to contact the lender directly.

Bank of America Balboa Capital Ally Financial
Features APR starting at 6.99%; Loan terms from 48 to 72 months; Loans starting at $10,000 Receive up to $500,000 in truck financing; Approval decisions may be as soon as one hour Offers specialty vehicle financing, commercial lines of credit, and closed-end loans
Eligibility requirements Need to be in business for at least two years (though you may qualify for an SBA loan); Meet credit requirements (not disclosed) At least one year in business; Minimum of $100,000 in annual revenue; Minimum 620 credit score Not disclosed

Alternatives to a Business Auto Loan

A business auto loan may not be your only option. Others include:

  • SBA loans. The U.S. Small Business Administration offers loans—the SBA 7(a) loan in particular—that can be used for most purposes, including acquiring vehicles and equipment. Businesses need to be for-profit and meet certain credit and size criteria, among other requirements.
  • Personal loans. Though it can be possible to use a personal loan to finance a vehicle, not all lenders will allow you to use the loan for business purposes. This funding option may also be risky since you could be personally responsible for payments if the business is unable to keep up with them.
  • Consumer auto loan. Taking out a consumer loan can be possible if you intend to use the vehicle for both business and personal purposes. Depending on the car’s use, you may be able to have your business pay for certain expenses.

How Long Does It Take to Get Approved for a Business Auto Loan?

Lenders vary in how long it takes them to approve a business auto loan. In many cases it may be several days to several weeks, depending on the amount you want to borrow and how much documentation the lender requires.

Can Startups Qualify for Business Auto Loans?

Startups can qualify for business auto loans, although there may be fewer lenders willing to fund them due to the greater perceived risk. Lenders often indicate how long a company needs to have been in business on their websites.

What Happens If I Default on a Business Auto Loan?

If you default on your business auto loan, the lender may repossess the vehicle in an attempt to recoup its losses. Your business credit score or rating could also be negatively affected.

Can I Use a Business Auto Loan to Purchase Used Vehicles?

Yes, it is possible to purchase a used vehicle using a business auto loan, just as it is with a regular consumer auto loan. Qualifying criteria will depend on the lender.

The Bottom Line

If your company needs a new vehicle, or a whole fleet of them, a business auto loan could be the answer. As with any other kind of loan, it pays to take the time to shop around for one with a good interest rate and other terms.

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