How and where to get a business car loan
If you are looking to finance a vehicle for your business, a business car loan may be a good option. The loan is usually secured by the vehicle, which means the lender can repossess the vehicle if the loan is not repaid. Business auto loans can be used to finance the purchase of a new or used vehicle, including ones modified for your business needs, and loan terms vary by lender.
What is a professional car loan?
Some lenders may require the vehicle to be used exclusively for business purposes, and many require the borrower to have a minimum credit score – business, personal, or both. The loan may also be personally guaranteed by the borrower, which means that the borrower’s personal assets may be at risk if the loan is not repaid.
How to get a business car loan
To get a business loan, you must first do a little planning. From there, it’s like getting a personal car loan, but with a few additional requirements.
- Set a budget: Whether you are buying a new or used vehicle, you will need to determine the maximum amount you can afford to spend on a monthly basis. Also figure out how much you are willing to spend overall.
- Check your credit: Check your business and personal credit scores and reports to identify and dispute errors. It can take up to 30 days for a creditor to respond, so get it done well in advance of when you want to buy. If your credit score is high enough and your report is relatively clean, you may qualify for a lower interest rate.
- Choose a vehicle: Compare your options to determine the type of vehicle you plan to finance. Some lenders may only finance new vehicles, for example, while others may have strict restrictions on the used vehicles they finance.
- Get pre-approved: Compare with at least three different lenders to determine which one is willing to provide you with a business car loan and what the terms are. Some lenders may require you to provide documentation proving that you own the business.
- Provide documents: You will need to provide your employer identification number or social security number, business bank statements, tax returns, profit and loss statement, cash flow statements, and balance sheet. You may also need to provide personal documents proving your personal income and creditworthiness.
Where to get a professional car loan
When shopping for car loans for your small business, you have three main options: banks, online lenders, and alternative lenders.
Traditional banks generally offer loans at competitive rates and flexible repayment terms. However, they may have restrictions on vehicle mileage and age. Business auto loan interest rates can drop below 3% if you access financing through a bank. However, the process can be long and you will need to provide a lot of documents.
Although not as stringent as bank lenders, online lenders generally require at least a good FICO credit score for the business owner and may have some restrictions on vehicles that can be financed. You may find it easier to qualify, and the interest rate ranges are often comparable to those of a bank or credit union.
With alternative lenders, you’ll usually see interest rates start a little higher. But there are usually looser restrictions on age and mileage, and the process is much faster.
Alternatives to professional auto credit
However, opting for a professional car loan is not your only option. Here are three alternatives that might help you secure the car your business needs.
- Small Business Loan: If you need another type of working capital, a small business loan may be a better option. But often, these come with higher fees and interest rates than a traditional car loan.
- Personal loan: It’s not a good idea to use a personal loan to finance a business vehicle. These types of loans are generally more expensive than business-specific loan options.
- Consumer car loan: If the vehicle is used more for personal use, a consumer auto loan may be a better option. These may be easier to secure, but you’re putting your personal credit on the line, rather than your business.
- Lease: You may be able to lease a car for your business rather than buying it. The car won’t be an asset to your business, but there are ways to factor the cost into your taxes. It can also be cheaper on a monthly basis.
Why you shouldn’t use a credit card
Using a credit card, business or otherwise, is usually not an option. High transaction fees make most dealers unwilling to allow them.
Credit cards are also very expensive compared to a loan. The rates are higher, both because of the nature of the product and because the vehicle does not act as a deposit.
The bottom line
Whether you are looking to finance a vehicle just for your business or a vehicle that will also be for personal use, take the time to compare the options available to you. With interest rates on business auto loans starting at less than 3% for borrowers with strong credit, it’s worth making sure you get the best deal.