If your business relies on one or more cars, vans, or trucks, you may want to look into getting a business auto loan — or refinancing an auto loan you already have.
Business auto loans typically use the vehicle itself as collateral, so they often come with attractive rates and terms. They can also be easier to qualify for than other types of business loans, and typically don’t require a personal guarantee.
Here’s a closer look at business vehicle financing, including how these loans work, which lenders offer them, and how to get an auto loan for your small business.
Key Points
• Business auto loans are designed to help businesses purchase vehicles for operational use, such as delivery vans, company cars, or fleet vehicles, often with tailored terms for commercial needs.
• The purchased vehicle typically serves as collateral, which reduces the lender’s risk and may lead to lower interest rates compared to unsecured loans.
• Eligibility often depends on the business’s credit score, financial stability, and revenue, but some lenders also consider personal credit for small businesses or startups.
• Loan terms can range from three to seven years, with interest rates influenced by creditworthiness, vehicle type, and lender policies.
• Payments on business auto loans may offer tax advantages, such as deductions for interest or depreciation, making them a cost-effective financing option.
What Is a Business Auto Loan?
A business auto loan is a type of financing that you can use to purchase a vehicle for your company. This type of loan can typically be used to buy cars, vans, and some trucks. For a heavier-duty vehicle or commercial truck, you may need to look into getting an equipment loan or commercial truck loan instead.
As with secured auto loans for consumers, business auto loans are typically secured with the vehicle you’re purchasing acting as collateral for the loan. If you default on your payments, the lender can seize and re-sell the vehicle to recoup its losses.
How Do Business Auto Loans Work?
Business auto loans work in a similar way as other types of small business loans: You get financing to buy the vehicle upfront, then pay it back (plus interest and any fees) in monthly installments over a set term.
Unlike a personal auto loan, however, the vehicle you are buying must be for business purposes. In fact, the lender may ask you how you plan to use the vehicle and require supporting documentation (such as a business plan or company financial statements).
Another difference between business and personal auto loans: For qualified borrowers, some lenders will let you put a business auto loan in your company’s name only. This can protect your personal credit or assets should your business be unable to repay the debt.
If you don’t have established business credit, though, you may need to provide a personal guarantee for the loan, which means you will be personally responsible for repaying the loan should your business become unable to make payments.
Business Auto Loan Amounts
The amount of money you can get with a business auto loan will depend on the lender, the type of vehicle you’re purchasing, and your qualifications as a borrower. In general, though, small business loan amounts range anywhere from $5,000 to $2 million-plus.
Recommended: How Big of a Business Loan Can You Get?
Term Length
The typical business auto loan term ranges from three to seven years, depending on the lender and the vehicle type. Shorter terms often have higher monthly payments but lower total interest costs, while longer terms spread payments out but increase overall expenses.
Repayment Structure
With a business car loan, you receive the entire principal upfront then start repaying it (plus interest) in monthly installments for a set term.
In some cases, a business auto loan might be structured like a balloon payment loan. This involves paying a set amount monthly then making a balloon payment — a one-time, larger-than-usual payment — at the end of a loan.
Before you enter a business auto loan agreement, it’s a good idea to fully understand the loan’s repayment terms.
Commercial Truck Loans
If you’re looking to purchase one or more semitrucks for your business, you may need to look for a commercial truck loan rather than a commercial auto loan. You can get semitruck financing from many lenders, including traditional banks, online business lenders, and alternative lenders that focus entirely on big rig lending. In some cases, commercial truck loans are part of a lender’s equipment loan (or equipment financing) program.
Buying vs. Leasing
When shopping for a business vehicle, you may have a choice of purchasing the vehicle outright (with financing) and owning it, or leasing the vehicle instead. There are pros and cons to leasing vs. buying a vehicle to consider.
Since lease payments don’t have interest, they usually cost less than auto loan payments per month. However, unlike with an auto loan, you don’t own the car and have to turn it in at the end of your lease.
Generally, if you want to keep the vehicle for an extended period of time, you may be better off buying the vehicle with a loan. This way, you can rack up the mileage, and don’t have to worry as much about wear and tear on the car. And, in the long run, business auto loans tend to be cheaper than business car leasing.
However, if you want to upgrade your business vehicle every few years to a newer model, or you don’t plan on racking up a large number of miles, an auto lease could be a smart option. Keep in mind, though, that leases are usually more expensive than loans in the long run, especially since you’ll have to pay more if you want to buy the vehicle when the lease expires.
Here’s a look at key differences between buying vs. leasing equipment for your business:
| Buying | Leasing | |
|---|---|---|
| Monthly Payments | Higher | Lower |
| Commitment | Long-term | Short-term |
| Maintenance | Owner covers cost of maintenance and repairs | Included in monthly payments along with minimal wear and tear |
| Modifications allowed? | Yes | No |
| Long-term cost | Generally, lower | Generally, higher |
Recommended: Small Business Tax Deductions
6 Steps To Getting a Commercial Auto Loan
Applying for a commercial auto loan is relatively simple, but a little advance planning can streamline the process. Here are the steps on how to get a commercial auto loan.
1. Figure Out Your Budget
A good first step is to consider the max amount your business can afford to spend — both upfront and per month — on a business vehicle. Keep in mind that the total cost will include more than the monthly auto loan payment. You’ll also want to factor in a down payment, lender/dealer fees, insurance, annual registrations, maintenance, and fuel.
2. Review Your Credit
Before you start looking at loans, it’s a good idea to check your business and personal credit scores to give you an idea of what type of loan you might qualify for. Credit requirements will vary by lender. Overall, banks tend to have stricter qualification requirements than alternative lenders.
Recommended: How to Check Your Credit Score for Free
3. Find the Right Vehicle
Before shopping for a loan, you’ll want to consider what kind of vehicle you want to buy for your business. Business auto loans generally cover vehicles under 2.5 tons. If you’re in the market for a heavier duty vehicle, you’ll likely need to seek out an equipment loan.
Also keep in mind that some lenders will only finance new vehicles, while others will finance used business vehicles that meet certain requirements, such as being less than five years old or having less than 75,000 miles.
Lenders will typically want to see a quote as part of your financing application, so once you’ve found the vehicle that you want, ask the dealer to write up an invoice.
4. Compare Offers
Some lenders will allow you to prequalify without triggering any hard credit checks — the kind that can negatively affect your credit. This typically involves filling out a short form and you’ll often get an answer right away.
If you are able to get a few prequalified offers, you’ll want to compare them by looking at their annual percentage rates (APRs). A loan’s APR includes both interest and fees, allowing you to compare offers apples to apples. You can also compare each loan’s required down payment amount, term length, and monthly payment.
5. Apply With a Lender
Once you’ve decided on a lender you’d like to work with, you’ll need to officially apply for the loan. Generally, banks will have a lengthier, more involved application process, while online lenders tend to offer simpler applications and faster funding.
The process will vary depending on the lender, but, typically, you’ll need to provide your vehicle quote, as well as your company’s key financial statements, bank statements, and tax returns. You may also need to provide personal documents proving your personal income and creditworthiness.
6. Sign!
Once you’re approved for a commercial auto loan, you’ll want to carefully review the loan agreement and make sure you understand all of the terms. If everything looks good, you simply need to sign and return the documents.
The turnaround time between signing and funding will vary by lender but can take anywhere from one business day to a few months.
Commercial Auto Loans with Bad Credit
It may be possible to qualify for a business auto loan with bad credit. That’s because this type of financing typically comes with built-in collateral — should you become unable to make your payments, the lender can seize the vehicle and sell it to recoup its losses. This makes business auto loans less risky to a lender than some other types of business loans.
That said, borrowers with bad credit may not qualify for the best rates and terms. In other words, you may get a loan for a lower amount, pay a higher APR, and have a shorter timeline for repayment than a business owner with good or excellent credit. You may also be asked to sign a personal guarantee.
Recommended: Guide to Business Loans for Bad Credit
Business Auto Loans vs Personal Auto Loans vs Equipment Financing
You can use equipment financing to buy cars, trucks, computers, furniture, and other supplies for your business. Personal auto loans and business auto loans, meanwhile, can only be used to buy motor vehicles.
| Business auto loans |
• Can help you buy cars, vans, and trucks for your business • The financed vehicle typically serves as collateral for the loan • Eligibility requirements may require a minimum amount of time in business |
|---|---|
| Personal auto loans |
• Can help you buy passenger cars for your personal use and ownership • The financed vehicle typically serves as collateral for the loan • These are consumer loans, not commercial financing |
| Equipment financing |
• Can help you buy cars, trucks, computers, furniture, and other supplies for your business • The financed equipment typically serves as collateral for the loan • Eligibility requirements may require a minimum amount of time in business |
Personal auto loan offers are typically based on your personal credit history, but business auto loan offers are typically based on your business credit score, time in business, and business revenue. Another difference is that getting a business auto loan can help you build business credit, whereas getting a personal auto loan will not have any impact on your business credit.
Business auto loans generally cover cars, vans, and small trucks. If you’re in the market for a heavy-duty vehicle for your business or you’re struggling to get commercial vehicle financing, you may want to consider applying for equipment financing from an online lender.
Also keep in mind that purchasing a vehicle through your company will reduce your personal liability for the vehicle. However, it may come with higher insurance costs.
Equipment financing can be used to buy or lease qualifying business equipment. Lenders may provide up to 100% of the value of the equipment, or they might require a 10% to 20% down payment for items with a high rate of depreciation, including commercial vehicles.
Alternative Financing Options
A business auto loan isn’t the only way to finance a vehicle purchase for your business. Here are other alternatives you may consider:
Term Loan
You can apply for a term loan as a source of funding for your business. A term loan gives you a lump sum of money upfront, and you typically have to repay the loan over a fixed period with interest.
SBA Loan
You can apply for an SBA loan as another source of funding for your business. SBA 7(a) loans can be used for almost any purpose, including buying commercial vehicles for your business.
Business Line of Credit
You can apply for a business line of credit if you need financing for your business. An unsecured business line of credit does not require any collateral, whereas secured business lines of credit do. With a business line of credit, you can use funding up to your approved credit limit, pay it off, and use it again.
Is Refinancing Commercial Auto Loans Possible?
You may be able to refinance a business auto loan and potentially get a lower APR and/or reduce your monthly payment. Generally, a good time to refinance an auto loan is when your business or personal credit has improved, you’ve paid a substantial portion of your loan off, or interest rates have gone down.
Keep in mind, however, that extending the term of your auto loan can result in higher overall costs, and some banks have restrictions on mileage and vehicle age.
The Takeaway
Business auto loans typically come with built-in collateral — the vehicle itself. As a result, they may cost less or be easier to qualify for than other loans, and depending on the lender, you may not have to provide a personal guarantee to secure the debt.
Getting a business auto loan could help you acquire the vehicles you need to run your business, and free up cash for other business activities.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Do business auto loans show up on personal credit reports?
No, a business auto loan typically won’t appear on your personal consumer credit report. If you take a business auto loan out in your company’s name, it won’t appear on your personal credit report or impact your personal credit score. If you haven’t yet established a business credit history, however, you may need to provide a personal guarantee, which can affect your personal credit history if your business defaults on the debt.
What does your business credit score need to be to get a business auto loan?
You’ll generally need a FICO® Score over 575 to get a business auto loan. Eligibility criteria can vary by lender, but securing a business car loan with bad credit can be difficult.
Do all banks offer commercial vehicle financing?
No, all banks don’t offer commercial vehicle financing. However, there are plenty of commercial banks across the United States that offer business auto loans if you need commercial vehicle financing.
Can a business take over a car loan?
Yes, in some cases it may be possible to transfer your car loan to a business. This could only be done if the lender gives you permission to transfer your car loan and title to a business that would assume the responsibility of paying the loan. You can contact your lender to discuss whether it allows businesses to take over car loans.
Can you use your EIN number to buy a car?
Yes, you can use your employer identification number (EIN) when buying a business car. If you own a business and want to apply for a business auto loan, you may do so using your EIN.
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