Financing your company's vehicle needs is a crucial aspect of running a business. You can get a car loan for business purposes, such as buying a new vehicle for your employees or a company car for executives.
Business car loans can have lower interest rates compared to personal car loans. This is because lenders view business loans as less risky, since the loan is secured by the company's assets.
You can use a car loan for business to purchase a vehicle that is up to 5 years old. This can be a cost-effective option for businesses that don't need the latest model.
What Is a Car Loan for Business?
A commercial auto loan is specifically designed for businesses to purchase vehicles for commercial use.
These loans are tailored for businesses of all sizes, from sole proprietors to large corporations expanding their fleets.
Unlike personal car loans, commercial auto loans have different terms, interest rates, and qualification criteria.
What Is a Car Loan?
A car loan is essentially a type of personal loan that allows you to borrow money to purchase a vehicle, often with a fixed interest rate and repayment terms.
These loans are typically secured by the vehicle itself, which means the lender can repossess it if you fail to make payments.
You can use a car loan for various purposes, such as buying a new or used car, or even financing a car repair.
Commercial auto loans, on the other hand, are exclusively for business use, making them a crucial tool for entrepreneurs and small business owners.
What Is an?
A commercial auto loan is a type of loan specifically designed for businesses to purchase vehicles for commercial use. It's tailored to meet the unique needs of businesses, whether they're small or large.
Delivery services, like local florists or national courier services, rely heavily on vehicles for their operations. A commercial auto loan can help them get the trucks or vans they need for timely deliveries.
Construction and contractors also rely on heavy-duty trucks to haul tools, equipment, and supplies. These financing options are tailored to meet the needs of businesses in these industries.
The terms, interest rates, and qualification criteria for commercial auto loans differ significantly from personal auto loans. This is because commercial auto loans are designed to meet the unique financial needs of businesses.
Eligible
Your business can qualify for a car loan if it operates for profit, and you're the owner (51% or more) who's a U.S. citizen or lawful permanent resident. You'll also need to meet the SBA's outlined size standards.
To be eligible, your business must be located and operate within the United States. You'll need to show that you have reasonable invested equity and that your business can't operate in an ineligible industry. Business owners can't be delinquent on any debt obligations to the U.S. government.
Eligible vehicles for business loans include cars, light-duty trucks, and vans. You can use the vehicle for business purposes, such as transporting goods or employees.
Here are the requirements to meet the SBA's size standards:
- Operate for profit
- Be owned (51% or more) by a U.S. citizen or lawful permanent resident
- Meet the SBA’s outlined size standards
- Must be located and operate within the United States
- Owners must have reasonable invested equity
- Your business can’t operate in an ineligible industry
- Business owners can’t be delinquent on any debt obligations to the U.S. government
- All owners with 20% or greater ownership must meet character requirements
- Your business must have a demonstrable need for a commercial vehicle loan
You'll also need to review your credit scores, as a business credit score of at least 80 and a personal credit score of 670 can qualify you for the lowest APRs.
Financing Options
If you're looking for financing options for your business, you have a few choices. Banks, such as U.S. Bank, Wells Fargo, and PNC Bank, offer commercial vehicle loans with low interest rates and favorable terms.
However, banks have strict requirements that can exclude many business owners from financing. You'll need to have strong credit, revenue, and a business history to qualify. If you're not eligible for a bank loan, you may want to consider online lenders or fintech companies for more flexible financing solutions.
Here are some factors to consider when choosing a financing option: FactorDescriptionCreditYour credit score and history will impact your interest rate and loan terms.Time in BusinessStartups will likely have higher rates than established businesses.Type of VehicleRiskier vehicles, such as those in the food truck industry, may be harder to finance and carry higher rates.Economic EnvironmentGeneral borrowing rates in the economy will affect vehicle finance rates.
Financing Options
You can finance a commercial vehicle through a variety of options, including banks and online lenders.
Business owners can submit a paper application for a commercial vehicle loan, which will be valid for 60 days.
Loan approvals are typically valid for 60 days, giving you time to finalize the sale and get back to business.
Some banks, like U.S. Bank, offer commercial vehicle loans up to $500,000 with no-down-payment options.
Wells Fargo offers commercial truck loans with competitive interest rates and flexible repayment terms.
PNC Bank offers commercial vehicle loans for both new and used vehicles at competitive rates, with funding amounts and repayment terms typically capping at $250,000 and 72 months.
Commercial vehicle loans generally have available lengths from 24 to 60 months, although 72 months can be an option sometimes for newer vehicles.
Down payments vary, but in most cases, a documentation fee or a first and last payment are all that is needed.
You can also lease a commercial vehicle, which may provide more flexibility and lower monthly payments.
Here's a comparison of some of the top banks for commercial vehicle loans:
Keep in mind that banks and credit unions often have strict requirements, such as strong credit and revenue, extensive business history, and a sizable down payment or personal guarantee.
Online lenders, on the other hand, may offer more flexible financing solutions with faster processing times.
Taycor Financial is a lender that offers a simple application process and may be available to newer businesses, with quick approval decisions and a one-page application for loans under $150,000.
Guarantor-Free Options
You can get a commercial vehicle loan without a guarantor, but it's not always easy. This is because lenders prefer loans backed by a guarantor or a personal guarantee, which offer added assurance that funds will be repaid.
Banks are more likely to reject applicants without a guarantor or a personal guarantee, but online lenders may offer more flexibility. You'll need to have good credit and strong financials to qualify.
Making a significant down payment may be required, and you'll need to be prepared to take on more risk. This can be a challenge, especially for small business owners.
Online lenders may be a better option for those without a guarantor or personal guarantee.
Loan Details
With a commercial vehicle loan, you can borrow an amount that allows you to purchase the vehicle in full and then manage the cost over time through repayment.
You can secure an amount higher than the cost of the vehicle if you need working capital to cover associated costs after the transaction.
The average interest rate on commercial vehicle loans is between 4% to 12%, depending on your financial credentials such as credit score, business revenue, and debt-to-income ratio.
How Much Can I Borrow?
When it comes to borrowing, it's essential to know how much you can afford to take on. SBA loans allow you to secure an amount that will allow you to make the purchase in full, then manage the cost over time throughout your repayment.
You can secure an amount higher than the cost of the vehicle if you need working capital to manage associated costs after the transaction. This flexibility is a key benefit of SBA loans.
The amount you can borrow will depend on your financial credentials, such as your credit score, business revenue, and debt-to-income ratio. A good credit score can help you qualify for better interest rates and larger loan amounts.
While it's tempting to apply for the maximum amount of money you qualify for, it's crucial to secure an amount that your business can repay without issue. This will help set your business up for success from day one.
Banks tend to have the lowest interest rates, ranging from 8% to 14%, but they also have some of the lowest approval rates on the market. This can make it difficult to secure financing from a bank.
SBA loans, on the other hand, have low-interest rates, ranging from prime rate + 2.75 to 3.75%. This can be a more attractive option for businesses with good credit.
Minimum and Maximum Tenure
When borrowing with an SBA commercial vehicle loan, you'll need to consider the minimum and maximum tenure of your loan. Most commercial vehicle loans have repayment terms ranging from 1 to 10 years.
A loan's tenure can greatly impact your monthly payments, with longer repayment terms often featuring lower monthly payments. However, this can also mean you'll be in debt for numerous years, and the amount of interest you'll pay over the lifeline of the loan is higher with a longer repayment period.
Loans with longer repayment terms can be helpful if your business's cash flow is limited, but if you can afford to make higher monthly payments, a shorter term loan may be a better idea since it'll help you save over the long run. You'll need to weigh your business's financial situation and consider what tenure will work best for you.
Here's a rough idea of what you can expect in terms of loan tenure with different banks:
Keep in mind that these are just rough estimates and the actual terms you'll qualify for can depend on many different factors, including your funding amount, credit score, and business revenue.
Choosing a Lender
Reputation is key when finding the right lender for your business. Look for lenders with glowing reviews, strong industry presence, and solid testimonials.
A lender with a one-size-fits-all approach can be a waste of your valuable time. You want a lender that can work with different credit portfolios and offer flexible financing options.
Time is money, and you don't want to wait weeks for a simple transaction. Look for lenders that can approve deals within 24 hours.
Beware of deals that seem too good to be true, as they often have a catch. Extremely low rates or promises that feel exaggerated should raise a red flag.
Here are some top banks for commercial vehicle loans:
If you're looking for more flexible financing solutions with faster processing times, consider working with an online lender or fintech company.
Shopping around before committing can help you get a loan at a competitive rate. Try to target lenders that have a prequalification process, so you can compare offers without dinging your credit score.
Frequently Asked Questions
Can I get a car loan with my EIN number?
Unfortunately, you can't get a car loan directly with your EIN number, but you may be able to qualify with a personal guarantee based on your credit score. Learn more about the requirements and alternatives for business car loans.
What credit score do you need for a business auto loan?
To qualify for a business auto loan, you typically need a FICO score of 575 or higher. However, credit score requirements may vary by lender, so it's best to explore your options carefully.
Which bank is best for commercial vehicle finance?
For commercial vehicle finance, Wells Fargo is the best option, particularly for large commercial and specialty vehicles.
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