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Many businesses require use of a semi-truck or other specialty vehicles, whether for transporting their own goods, commercial shipping, or taking on shipping contracts for other companies. But commercial trucks can be expensive, and business owners often have to borrow to pay for them. This guide can help you understand what you need to know to finance these purchases.

What Is Commercial Truck Financing?

Commercial truck financing is designed to help borrowers pay for commercial vehicles. One common type, the semi truck, can cost anywhere from $70,000 to $200,000 or even more. So businesses may struggle to purchase them in cash.

Trucking business loans enable the buyer to pay for the truck over the period of the loan, breaking down the hefty cost (plus interest and fees) into more affordable regular payments. To secure the loan, though, you will likely need to put some money down.

If your business relies on cars, vans, or smaller trucks, you may want to look into business auto loans.

Typical Financing Options

Commercial truck loans come in several types. Here’s a look at some of the most common.

Business Loans

A general business loan provides borrowers with a lump sum to fund various business expenses, including purchasing a truck. The borrower agrees to repay the loan over time with interest. For more favorable terms, you may need to offer the lender some collateral. If your business is just starting out, a startup business loan could help you buy the equipment you need to get on your feet.

Business loans are available through traditional banks and credit unions. There are also some specialty lenders who focus on commercial trucks.

Equipment Loans

Equipment financing is a type of small business loan issued for the express purpose of buying business equipment. You can use this type of loan to buy vehicles as well as necessary tools and appliances. As with other business loans, the borrower receives a lump sum, which they agree to repay with interest. The equipment being bought often serves as collateral for the loan.

SBA Loans

An SBA loan is a type of small business financing that is partially guaranteed by the Small Business Administration. These loans are offered through banks as well as private lending companies. In general, an equipment loan that’s backed by the SBA will have a 10-year term.

Financing vs. Leasing

Instead of purchasing your own new or used commercial truck, you may want to consider leasing one. When you lease a truck, you make monthly payments in exchange for its use; your payments don’t go toward ownership of the truck. Depending on specifics, leasing may cost less each month than paying back a loan. Also, leasing may not require a down payment.

That said, vehicle leases may impose mileage limits, sometimes as low as 12,000 to 15,000 miles per year. You’d then be charged a fee for the additional miles. This setup may not work for you if your business requires long-distance hauling or towing.

Recommended: Business Line of Credit

Loan Qualification Requirements

Qualification requirements are likely to depend on the type of loan you choose.

Credit Score Requirements

For small business loans, traditional banks often require a credit score of around 680 or more. An alternative lender may accept lower scores of 500 to 600. You may be able to secure an equipment loan with a score of around 630.

Credit score requirements for SBA loans will vary. For 7(a) loans, your personal credit score should generally be in the 630-to-680 range. SBA 504 loans tend to require a score of 680 or more.

Time in Business

Lenders like to see that your business has a track record of success; a solid business footing suggests you’ll be able to pay back your debt. As a result, lenders may want information about your company’s history. For instance, SBA’s 7(a) Working Capital Pilot loans require that your business have at least one year of operating history.

Down Payment Expectations

Most business loans will involve a down payment, since lenders lower their risk by getting some money up front. You can expect to pay at least 10% to 20% of the loan value. But the amount of your down payment can vary. The larger the down payment you make, the more favorable your terms and interest rates are likely to be.

Revenue Thresholds

A predictable revenue stream helps assure lenders that you have the cash flow to make regular loan payments. Lenders may require a certain level of annual or monthly revenue to approve a loan.

Recommended: How Much Does a Truck Driver Make a Year?

Commercial Truck Loan Costs

With a commercial truck loan, a borrower takes on various costs in addition to paying back the loan principal.

Interest Rates and Terms

Your largest expense is likely to be the loan interest you pay. This is the price your lender charges you to finance a commercial truck. The amount of interest you pay will depend on factors like the type of loan, the amount of the loan, your credit score, and the size of your down payment.

Additional Fees

Your lender may charge several one-time fees when you get your loan. Some examples are origination fees, application fees, underwriting fees, and closing costs. One way to see how fees impact the overall cost of your loan is to look at its APR versus its interest rate. The APR of a loan includes the cost of all fees.

Insurance Requirements

Your lender will likely require proof of insurance to release the funds for your vehicle loan. Ask about their specific requirements before you shop for a policy. You may need extra liability insurance, cargo insurance, and more.

How to Apply for Truck Financing

When you’re ready to apply for truck financing, shop around to various lenders, including banks, credit unions, alternative lenders, and direct lenders who specialize in truck loans.

You may wish to get prequalified by a lender to get a sense of whether you can meet their criteria. You can do it even if you haven’t found the vehicle you want to purchase yet. Or, if you already have a vehicle in mind, prequalification may be helpful when negotiating with the seller.

Documents Needed for Application

When you apply for a loan, have these documents at the ready:

•  Business registration

•  Business income statements and balance sheets

•  Proof of truck insurance

•  Commercial driver’s license

•  Up to a year’s worth of bank statements

•  Three years’ worth of business and personal tax returns

•  Your employer identification number

Tips for Securing the Best Financing

Lenders will offer the best terms and interest rates to established businesses with stable revenue and high credit scores. It is possible to secure equipment financing with bad credit, but it may be tricky. If you don’t meet a lender’s credit score criteria, consider taking action to boost your score. These might include paying down other debts and ensuring your existing loan payments are always on time.

The Takeaway

Semi trucks can be expensive, so many businesses take out commercial truck loans. There are a variety of options for financing commercial trucks, including leasing. Reach out to lenders to find out what their loan requirements are and what terms they might offer. In general, improving your credit score will help you to qualify for the best terms and interest rates.

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

What credit score do I need for commercial truck financing?

For small business loans, traditional banks will usually require a credit score of around 680 or more. You may be able to secure an equipment loan with a score of around 630. With a lower credit score — possibly as low as 500 or 600 — it may be possible to contract with an alternative lender.

How much is a typical down payment for a commercial truck?

You can expect to pay at least 10% to 20% of the loan value as a down payment on a commercial truck loan.

Can I get truck financing with bad credit?

It is possible to get a commercial truck loan with bad credit, though your options may be limited. Some alternative lenders do specialize in offering loans to borrowers with poor credit.

What’s better: leasing or financing a commercial truck?

The decisions to lease or finance a commercial truck will depend, in large part, on your business needs. For instance, leased trucks may have annual mileage limitations, so if you need to drive farther than the lease allows, it may make more sense to buy.

How long are typical commercial truck loans’ terms?

Loans for commercial trucks typically have a term of one to five years, though some banks and traditional lenders may offer 10-year loans.

Photo credit: iStock/RichLegg

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-001

It takes a lot of capital to launch and maintain a restaurant, from outfitting a commercial kitchen in the back of house to incorporating a point-of-sale system at the front of house. Fortunately, restaurant equipment financing spreads out some of these high costs over time, which can really help if you’re opening a new location or responding to an unexpected equipment failure.

Here’s what you need to know about your options for buying or leasing restaurant equipment and how to make that financial decision.

Financing Options

What’s the best way to finance restaurant equipment? There are four primary options available, whether you’re grilling up burgers and fries or serving a curated tasting menu.

Equipment Loans

Equipment loans are available from online lenders, traditional banks, and even vendors who offer in-house financing. Because the equipment is used to secure the loan, you could avoid having to make a large down payment, enabling you to save your working capital for other expenses. Interest rates are usually fixed, giving you the same monthly payment for the life of the loan.

A similar alternative is a business line of credit, which often comes with a variable rate. The other difference is that you can borrow as needed up to your available limit, instead of receiving a lump sum. A line of credit could be helpful if you plan to spread out purchases or want an emergency fund in place for equipment maintenance and replacements.

An equipment loan or line of credit may let you roll in some or all of your soft costs, such as taxes and delivery fees. Equipment leases typically allow for this.

Recommended: Online Business Loans: Compare and Apply

Leasing Programs

Leasing vs. purchasing equipment for your restaurant could save you money. You’re only making payments to cover the lease period, rather than being on the hook for the full cost of the equipment. When the lease ends, you can return the items; if your contract includes a buyout clause, you may be able to purchase the equipment at that time.

Among the drawbacks of leasing restaurant equipment: Your payments don’t add up to any equity in the items, so you can’t resell them or use them as collateral for future borrowing. Also, your long-term costs, including financing charges, could be higher than if you were making principal and interest payments on a purchase loan.

SBA Loans

Restaurants can apply for small business financing that is backed by the SBA, which may have more flexible credit requirements than other loan types. An SBA 7(a) loan allows businesses to borrow up to $5 million from a direct lender. Those funds can be used for a number of purposes, including machinery, equipment, fixtures, and furniture. You do, however, need a 15% to 25% down payment on the loan amount.

SBA 504 loans are another option which can be used for any type of machinery or equipment with a remaining useful life of at least 10 years. The maximum loan amount is $5 million and lenders often require a minimum down payment of 10%.

Working Capital Loans

A working capital loan isn’t specifically designed to finance equipment; you can use the money to cover any needs in your restaurant. The loan term and amounts are usually smaller than for equipment financing that covers larger purchases. So if you need funding to buy smaller appliances or point-of-sale equipment, a working capital loan could be a good choice.

Recommended: Guide to Agricultural and Farm Business Loans

Qualification Requirements

Lenders look at three key factors related to your restaurant as part of the application review process.

Credit Considerations

You’ll often need to go through both a personal and business credit check as part of the application process, regardless of which type of restaurant equipment financing you choose. But there’s no universal credit score requirement; each lender has its own criteria.

It’s even possible to get bad credit equipment financing, especially when the equipment itself is collateral. If you can also offer additional collateral or a down payment, you may have a better chance of getting approved.

Time in Business

It can be difficult to obtain a loan for a new restaurant with no previous revenue history. Typically, you’d need to have been in business for at least a year to qualify, but by comparing multiple lenders, you may find one with more flexible criteria. New restaurant owners can also explore startup business loans to finance their equipment purchases.

Revenue Requirements

Revenue requirements also vary by lender. Many cite minimum annual revenues of $100,000 to $200,000, although you may find lenders who accept less.

The amount you can borrow — and repay — will largely depend on the restaurant’s revenue and outstanding debt. The more cash flow you have, the larger the loan you may be able to handle. Expect to provide financial documents like tax returns and bank statements as proof of revenue.

New vs Used Equipment

When you’re deciding on the equipment you want to purchase or lease, bear in mind that both new and used options have their pros and cons. New equipment can be more reliable, and sellers sometimes offer perks like warranties and rebates. Also, you’ll typically qualify for better financing terms if you choose new equipment rather than used. However, if the new equipment is more expensive, then your overall cost may end up being higher. If upfront prices are your top priority, then secondhand equipment may be a better bet.

💡 Recommended: Business Equipment Leasing

Tips for Choosing the Best Financing Option

First, think about whether you prefer to buy or lease your equipment. Buying may be a wiser option if you expect the equipment to last well beyond the term of the loan. Leasing could be preferable if you like to upgrade to the latest equipment every few years.

Next, look at lender requirements and compare multiple options that you could potentially qualify for. Different financing companies typically set up their own terms and loan structures, so you shouldn’t rely on only one quote when making a decision.

The Takeaway

When it comes time to outfit your restaurant space, equipment financing can help preserve your working capital. Government loans are available, as are direct loans and restaurant equipment leases. Lenders typically have requirements for borrowers’ revenue, credit, and time in business.

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

What credit score do I need for restaurant equipment financing?

Credit score minimums for restaurant equipment financing vary by lender. Lower scores may qualify if you can provide additional collateral or a larger down payment.

Should I lease or buy restaurant equipment?

Whether you should lease or buy restaurant equipment depends on whether you plan to use it beyond the payment term. Lease payments don’t go toward equity in the equipment, but you may still be able to purchase the item after the lease agreement ends.

Can I get financing for used equipment?

Yes, you can get used equipment financing for your restaurant, but the interest rate may be higher. Additionally, the loan term may be shorter since used equipment will likely not last as long as the new version.

What documents do I need to apply?

Lenders require a variety of business documents, including tax returns and financial statements. You may also be asked to supply details on the equipment you plan to purchase and how it will affect the restaurant.

How long can I finance restaurant equipment?

It depends on the expected lifespan of the equipment itself. The maximum is usually in the 10-year range, but some SBA loans have a longer term, especially for heavy equipment.

Photo credit: iStock/Ugur Karakoc

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-006

Growers who need farm equipment financing can find a variety of lenders and financing options. Interested borrowers can pursue farm equipment loans to purchase farm equipment or, if they prefer, an agricultural equipment lease.

What Is Farm Equipment Financing?

Farm equipment financing can help you pay for agricultural equipment such as tractors, harvesters, dump trucks, planters, combines, utility vehicles, and more. You can purchase new or used equipment with a farm business loan; the machinery you’re buying usually serves as collateral. Loan terms can range from one to 10 years.

Types of Farm Equipment Financing

There are a few different types of ag equipment financing providers, including USDA loans, traditional equipment loans, agricultural leasing, and farm credit system options.

USDA Loans

The United States Department of Agriculture (USDA) provides operating loans to farmers and ranchers to purchase essential items, including equipment. Rookie farmers could turn to USDA loans as an alternative to startup business loans. The USDA also makes funding available to farmers and ranchers who are socially disadvantaged or who have been hit by economic hardship.

The USDA both makes direct loans and guarantees loans for commercial lenders. Interest rates for USDA loans are often lower than other small business financing options, but getting the loan approved can take longer.

Traditional Equipment Loans

You could also get traditional equipment financing — that is, a loan not specific to farming — from online or direct lenders. Lenders who don’t specialize in ag loans, however, may or may not be familiar with all the factors that go into the business of farming.

Agricultural Leasing

Leasing is another option for ag equipment financing. When you’re assessing leasing vs. purchasing equipment, consider how long the equipment will be useful to you. If you need it for only a short time, leasing can be a good option. Also, if new technology is likely to change the equipment frequently, leasing gives you the flexibility to upgrade to newer models without facing the sunk cost of ownership.

Farm Credit System Options

Farm Credit is a network of customer-owned cooperatives that provide loans, insurance, and financial education to rural people. Growers, ranchers, and other agricultural producers can access the Farm Credit network’s online business loans along with an array of planning and budgeting resources.

Qualification Requirements

Criteria for these loans vary, so before applying for a farm equipment loan, look at each lender’s specific requirements. Typical conditions include details about credit history, farm revenue, and loan collateral.

Credit Considerations

Most lenders figure in the applicant’s personal credit score when considering a loan application. As usual, the higher your credit score, the better your chances of being approved. The minimum credit score needed will vary by lender and loan.

If your score is low, you may still be able to get farm equipment financing. USDA farm loans may be available to farmers with low credit scores. There are other bad credit equipment financing options, too. Some online lenders may have more flexible loan requirements and a willingness to work with startups or businesses with bad credit.

Farm Revenue Requirements

As part of your application, most lenders will also ask to see information about your farm’s annual revenue. How much revenue you’d need for loan approval will depend on your lender’s rules and the terms of the proposed loan.

Collateral Options

Many ag equipment loans allow you to use the farm equipment as collateral. This means that if you can’t repay the loan, the lender can take back the equipment.

Benefits of Financing Farm Equipment

Financing farm equipment allows growers who can’t afford major machinery costs up front to go ahead and buy the big-ticket items they need. They can then start or expand their operation sooner than if they had to save up for the equipment first. Financing also enables borrowers to break down the cost of expensive purchases into manageable monthly payments.

Ag equipment loans may also have lower interest rates than other types of business loans, especially if the borrower has good credit.

Seasonal Considerations

Some farm equipment financing can resemble business lines of credit that accommodate agriculture’s seasonal nature and characteristic cash flow cycle. In some cases, a lender will allow borrowers to set up delayed payments for up to 15 months.

Tax Implications

Interest payments on farm equipment loans are often tax-deductible. A farm with three years’ worth of average annual gross receipts under $30 million is likely to be eligible for this deduction, but be sure to consult a CPA or tax attorney who’ll help you figure out the right answer for your situation.

How To Apply for Farm Equipment Financing

When you’re trying to get farm equipment financing, you’ll generally need to show a stack of financial documents to the lender. Common examples include your business and personal bank statements, business and personal tax returns, your financial history, the farm’s production history, a balance sheet, current leases and contracts, a business plan, and a list of existing creditors.

The Takeaway

Farm equipment financing is available from a range of sources, including government agencies, lenders that specialize in agriculture, or traditional lenders. These loans typically use the equipment itself as collateral. For short-term equipment use, leasing could be a better choice.

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

What are USDA equipment loans?

USDA equipment loans can be used to start, expand or maintain farms. Many of the USDA loans go to socially disadvantaged people, those who are just starting out, or those who have faced economic hardship.

How do seasonal payments work?

Some farm equipment financing takes into consideration farms’ unique cash flow cycle and seasonal nature. You may be able to set up seasonal payments — that is, annual, semiannual, or quarterly — on your farm equipment financing.

What tax benefits are available for farm equipment?

Interest payments on farm equipment loans are often tax-deductible. Many family farmers could qualify for this deduction, but it’s essential to consult a tax professional (CPA or tax attorney) to get the right answer for your situation.

Can I finance used farm equipment?

Yes; many farm equipment loans can go toward the purchase of used equipment.

What documentation do I need for a farm equipment loan?

Generally, documentation requirements vary by the loan type and lender. Among the documents lenders often ask for are tax returns, bank statements, a business plan, your financial history, the farm’s production history, a list of current creditors, a balance sheet, and existing leases and contracts.

Photo credit: iStock/RyanJLane

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOSMB-Q125-003

Do businesses get tax refunds? Sometimes, yes.

Generally, taxpayers, whether individuals or businesses, will only get a refund if they pay more in taxes during the year than they end up owing. Tax refunds for small businesses tend to be less common than refunds for individuals simply because they often do not pay taxes directly.

Whether or not your business can get a tax refund will depend on how it is structured and how much you paid in estimated taxes during the course of the year. Here’s a closer look at how a business can get a tax refund.

How Do Tax Refunds Work?

Taxpayers can generally receive a tax refund if too much money was withheld from their paychecks throughout the year. Because business owners typically don’t have any taxes withheld on their business income, they will often pay their federal and state taxes on a quarterly basis. These payments, called estimated taxes, are based on how much the owner thinks the business will owe in taxes. If the estimate is too high, they will get a refund.

However, whether that refund goes to the business owner or to the business itself will depend on the way the business is structured. Generally, C-corporations are the only type of business entity eligible for a direct tax refund.

Recommended: What Is a Small Business Audit?

Are Businesses Eligible for Tax Refunds?

In some cases, yes. A small business that is registered as a corporation may be eligible for a tax refund if it overpaid on its quarterly estimated taxes. Any amount of overpayment would be refunded to the business after its tax filing.

Most small businesses, including sole proprietors, LLCs, partnerships, and S-corporations, however, pay their business income tax through the owners’ personal tax return. These are called pass-through businesses because their profits “pass-through” to the owners’ personal tax return, and the business owner or owners pay taxes rather than the business.

Business owners who report income from pass-through companies include the income (along with income from other sources, like wages, interest and dividends, gains on the sale of property or rental income) on their individual 1040s. These individual owners would receive a refund only if their total payments and withholding exceed their total tax liability on the return.

Recommended: Startup Business Loans

Pros and Cons of Overpaying Taxes to Get a Refund

The key to getting a tax refund on your business’s income is to pay more in taxes throughout the year than you end up owing at the end of the year. This is the case whether you own a pass-through business (and report your business’s earnings on your personal tax return) or a corporation. Here’s a look at the advantages and disadvantages of overpaying taxes to get a refund.

Pros

•   Avoid fines from the Internal Revenue Service (IRS) from paying too little

•   Reduced cash flow prevents the business from overspending

•   Refund can be put into a savings account for next year’s quarterly taxes or used to pay off debt

Cons

•   Can take time to receive a refund

•   Reduces your business’s cash flow and spending potential

•   Can make a company’s financials seem worse than they are, which might make receiving a business loan more difficult.

How Different Types of Businesses Pay Taxes

When figuring out “Can a business get a tax refund?” it depends in part on your type of business. Whether your business can get a tax refund or not will depend on how it is structured. There are five types of business structures, each with its own tax requirements.

Sole Proprietorship

A sole proprietor is a person who runs an unincorporated business by themselves.

Because a sole proprietorship is not a distinct legal entity from the sole proprietor, the business does not file a business tax return. Any money earned or lost is reported on the business owner’s personal tax return using Form Schedule C.

Limited Liability Company (LLC)

A limited liability company (or LLC), is essentially a legal hybrid between a sole proprietorship and a corporation. The benefit of an LLC is that the business owner is protected from any personal responsibility associated with the business’s debts (such as different types of small business loans).

LLC owners typically report income from their business (along with income from other sources) on their individual 1040s. These individual owners would receive a refund only if their total payments and withholding exceed their total tax liability on the return.

Recommended: Sole Proprietorship vs. LLC: How to Choose

S-corporation

S-corporations pass their income through to their owners (called shareholders), so the business itself doesn’t pay any corporate tax. Each owner reports this income on a Schedule K-1 when they file their personal tax returns and pays taxes on their share of the business’s profits.

Partnership

Partnerships file Form 1065 to report the company’s revenues and expenses. However, the partnership doesn’t pay taxes to the government directly. Each partner receives a Schedule K-1 that reports their share of the business’s profits. They then use this K-1 to fill out their personal tax returns and pay any tax due on that income.

C-corporation

A business structured as a C-corporation is taxed separately from the business owners. C-corporations use Form 1120 when filing their taxes. A C-corporation is a type of business that could get a tax refund in the event that it pays more estimated tax during the year that is due on the final tax return.

Types of Business Taxes

Whether your business or you as the owner can get a tax refund also depends on the type of taxes you pay. Here’s a closer look at how and when you might get a refund.

Income Tax

Businesses or business owners typically have to pay federal, and often state, income tax on any profits earned in a given year. They typically do so by paying quarterly estimated tax payments. If the owner or business overestimated and overpaid, it may receive a refund.

Payroll Tax

If your business has employees, you must report and deposit both federal and state payroll taxes, which include unemployment taxes, FICA taxes, and income tax withholding. Regardless of your business structure, it might be possible to receive a refund on payroll taxes if you overpay your account.

Self-Employment Taxes

Self-employment taxes go towards both Medicare and Social Security. All LLC members, sole proprietors, and partners in a partnership must pay self-employment taxes. An overpayment of these taxes could result in a refund to the business owner.

Sales Tax

Many states and cities levy a sales tax on transactions of goods and services. The federal government also taxes certain goods and services, such as tobacco or fuel. An overpayment of sales or excise taxes could result in a refund to the business or owner.

Recommended: Equipment Financing Loans

5 Tips to Maximize Business Tax Refunds

Do business owners get tax refunds? It depends on several factors.

One way to maximize business tax refunds is to deliberately overpay estimated taxes, which, as mentioned above, has both pros and cons. Here are some other ideas to keep in mind when planning your business’s finances.

1. 401(k) Matching

If you offer your employees a 401(k), you may want to consider also offering matching funds. The amount your company offers in a 401(k) match is typically considered a qualified business expense up to certain limits.

2. Tax Credits

As a business owner, there are a number of tax credits you may be able to take advantage of at both the federal and state level. Speak with your account or take a look at the IRS’s business tax credits to see what credits you may be eligible for.

3. Tracking Mileage

If you drive for business, it can be a good idea to track the amount of business miles you’re logging throughout the year. The IRS allows you to deduct a certain amount for every mile driven for business purposes (for the 2023 tax year, it will be 65.5 cents per mile).

4. Home Office Deductions

If you have an office in your home dedicated solely to your business, you may be eligible for a home office deduction. Generally, your home office must be either the principal location of your business or a place where you regularly meet with customers or clients.

Home office business deductions are based on either the percentage of your home used for the business or a simplified square footage calculation.

5. Employee Bonuses

Bonuses can be a win-win. They not only help incentive and reward employees, they may also qualify as a small business tax deduction. There are rules and regulations around how much of a tax deduction you can take from employee bonuses. To learn more, refer to the IRS’s Guide to Fringe Benefits.

The Takeaway

Do businesses get tax refunds? A business can get a tax refund if it overpays its estimated taxes. However, whether that refund goes to the business itself or to you, as the business owner. will depend on how your business is structured. Generally, the only way the business itself will get a tax refund is if it’s structured as a C-corporation.

Whatever your business structure, however, there are actions you can take throughout the year that could potentially reduce your tax burden and, subsequently, increase your tax refund. A tax professional can offer guidance.

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.

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

Can small businesses get money back on their taxes?

It’s possible. However, in order for a small business to get a tax refund, it would need to pay more than is actually owed to the Internal revenue service (IRS) in estimated taxes. And, unless the business is structured as a C-corporation, any refund would go to the business owners, not to the business itself.

Do business owners get tax breaks?

Many businesses qualify for tax breaks, described as tax deductions. It is “any ordinary and necessary expense” incurred to carry on any trade or business. It’s up to the business owner to pursue tax deductions. The pass-through deduction allows eligible small business owners to deduct up to 20% of their net business income.

How much can small businesses get back in taxes?

It all depends on how much the business paid in estimated taxes. If the business (in the case of a C-corporation) or the business owners (in the case of a pass-through business) overpaid estimated taxes during the year, that business or owner would get a refund.

Are LLCs able to get tax refunds?

Not typically. LLCs are generally treated as pass-through entities for federal income tax purposes. This means the LLC doesn’t pay taxes or get refunds of its own. Instead, each member pays taxes on the business’s income in proportion to their ownership stake in the LLC. If the LLC members overpay their estimated taxes, they would receive a tax refund.

Will I get a tax refund if my LLC loses money?

It may happen in certain circumstances. Most likely, if your LLC takes a loss, you can likely include the business loss in your tax return to lower your taxable income.

Photo credit: iStock/Jirapong Manustrong

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SOSMB-Q125-015

A budgeted income statement is a tool that allows businesses to estimate how well they will perform financially in the coming months and year. It looks like a regular income statement except that it estimates the expected revenue, net income, and expenses for an upcoming period instead of analyzing past performance.

A budgeted income statement can help you assess whether your future financial plans are realistic or you need to make some budget adjustments. It also allows you to anticipate (and plan for) any expected adverse changes in the market and determine whether or not you need financing.

Read on to learn more about budgeted income statements, including how to prepare one and how they can help you grow your small business.

What Are Budgeted Income Statements?

By definition, a budgeted income statement (or simply a budget income statement) is a tool to help businesses estimate future expenses, revenues, and profit for a given period. Companies that make use of these income statements for budgeting usually create them at the beginning of the fiscal year to help create a realistic forecast for all four quarters. Some companies may separate this financial report into smaller monthly sections for a more detailed assessment of what the coming year may look like.

If you have plans to grow your business — say, by investing in new equipment, hiring more employees, or expanding your products or services — a budgeted income statement can help you determine if your plan is feasible. By budgeting via income statement, you’ll be able to estimate your revenue and expenses, anticipate problems, and make decisions accordingly. Such estimates can also be useful when you’re applying for a startup business loan or other credit.

Before you can create a budgeted income statement, you’ll need to have created all the other operating budgets, such as the direct materials, direct labor, manufacturing overhead, and administrative expense budgets.

💡 Recommended: What Is Vendor Financing?

What Is Included in a Budgeted Income Statement?

A budgeted income statement is essentially created by subtracting the projected cost of goods sold (COGS) and other expenses from the projected net sales. It generally includes every section included in a normal income statement:

•   Sales

•   COGS

•   Gross profit (sales – COGS)

•   Operating expenses

•   Operating income (gross profit – operating expenses)

•   Interest expenses

•   Estimated income taxes

•   Net income

Example of a Budgeted Income Statement

Below is a budgeted income statement example for fictional company ABC. All numbers are based on forecasts (as well as data from previous years) and the statement represents the estimated profits and losses for the first month in the upcoming fiscal year.

In this budgeted income statement example, Company ABC estimates they will earn a net income of $9,480. This helps justify their spending and expenses because of the positive net income generated for the company.

Why Are Budgeted Income Statements Important?

Budget income statements are important because they assess if a company’s financial plans look to be feasible. This can lead to a variety of benefits, including:

Risk Management

All growth involves an element of risk. Using an income statement to budget helps you limit that risk by determining whether your company has the financial resources it needs to accomplish upcoming projects and plans for growth. It can help you avoid making bad business decisions and/or spending more than you can afford.

This type of statement also forces you to consider any potential pitfalls or added expenses that may come your way and plan for them so they don’t put your company at risk.

Justifying Purchases

“You have to spend money to make money” is the old adage that the budget income statement often verifies. Business owners can use a budgeted income statement to show that if the company is willing to spend X, it could potentially earn Y. This can be useful if you are looking for an outside investment or business equipment financing to fund a project that might be viewed as risky.

Inform and Attract New Investors

A well-thought-out budgeted income statement can show any potential investors what your company’s expenses and profits will likely be in the coming months and year. Such a statement can make it clear that a business owner not only has a vision for their company’s future, but also a detailed action plan that outlines every expense and projected revenue. This is likely to give would-be investors more confidence in the company and its mission. Similarly, showing a carefully compiled budgeted income statement to lenders may help you negotiate better terms on a small business loan.

Setting Targets

The projections from a budgeted income statement provides spending and earning targets that people in the company can work together to achieve. If the budgeted income statement sets a lower-than-usual budget for administrative expenses, for example, employees can then look for ways to reduce spending in order to meet the target and, in turn, increase revenue.

Tracking Performance

A budgeted income statement is also valuable to have at the end of the year because it allows you to compare profit and loss projections with actual numbers. Whether the company exceeds expectations or falls short, it provides an opportunity to ask why. For either scenario, the answers can be illuminating and affect the company’s next steps.

Recommended: Business line of credit

Preparing a Budgeted Income Statement

Preparing a budgeted income statement is similar to a regular income statement. The only difference is that the amounts are based on projections rather than past performance.

The steps to prepare a budget income statement are:

1.    Determine projected net sales. This is the total amount of revenue you expect to bring in from sales (minus any expected returns, discounts, or allowances). You estimate net sales by multiplying the expected number of units sold by price per unit.

2.    Estimate the COGS and subtract it from the projected net sales. The COGS includes the direct costs of producing the goods or services that your company sells, such as materials, labor, and overhead costs. You then multiply the expected number of units sold by the cost of production. When you subtract COGS from projected net sales, you get estimated gross margin.

3.    Estimate selling and administrative expenses and subtract them from the gross margin. Selling and administrative expenses can include advertising, rent, salaries, and other general and administrative expenses.

4.    Estimate interest payments and taxes and subtract them from the remaining number. By calculating interest payments and other itemized deductions, you can get an estimated net income for the projected period.

Recommended: Guide to Business Tax Refunds

Limitations of Budgeted Income Statements

While there are numerous benefits to preparing a budgeted income statement, this type of financial statement also has some limitations.

For one, a budgeted income statement is based on estimates and assumptions. While these assumptions are based on historical sales data and expected market conditions, actual sales and market conditions could turn out to be different than anticipated. In other words, these numbers are not set in stone.

Another downside to budgeted income statements is that they take a fair amount of time and effort, as well as business expertise, to prepare.

These statements are also somewhat inflexible. Because they are based on information from several other budgets, making any change to a budgeted income statement requires making a corresponding change in the supporting budgets.

The Takeaway

A budgeted income statement can help businesses maximize profits and decrease expenses by forecasting how much they are likely to make and spend. It can be used as a tool for growth and strategic planning to ensure your company has the financial resources needed to have a successful year.

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

What is included in a budgeted income statement?

A budget income statement often includes estimates for sales, cost of goods sold (COGS), gross profit, operating income and expenses, interest expenses, income taxes, and net income.

What is not included in a budgeted income statement?

A budgeted income statement does not report information about cash reserves, cash flow, or non-cash sales. It also does not include dividends, unrealized gains or losses on investments available for sale, or changes in the value of long-term liabilities.

Should all businesses use budgeted income statements?

Preparing a budgeted income statement can be a smart move for any business because it helps to justify expenses and verify that plans for future growth are financially feasible.

How is a budgeted income statement prepared?

To prepare a budgeted income statement, start by estimating the net sales revenue you expect and the COGS (including all direct costs of producing your goods or services). Subtract the COGS from net sales to get the estimated gross profit. Calculate the operating income by subtracting your projected selling and administrative expenses; for the net income, you’ll also subtract estimated interest payments and taxes.

How do budgeted income statements help investors?

Budgeted income statements help investors by providing a company’s projected revenues and expenses for the coming months or year. It also allows investors to see how the company’s expected performance compares to previous years.

Photo credit: iStock/fizkes

SoFi's marketplace is owned and operated by SoFi Lending Corp.
Advertising Disclosures: The preliminary options presented on this site are from lenders and providers that pay SoFi compensation for marketing their products and services. This affects whether a product or service is presented on this site. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider. See SoFi Lending Corp. licensing information below.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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