Business Auto Loans: How to Qualify and Best Options

Business Auto Loans: What They Are and Where To Find Them

Acquiring a business vehicle is a strategic move that can significantly enhance customer service and potentially unlock valuable tax benefits. If a direct cash purchase isn’t feasible, a business auto loan can be an excellent financing solution, especially for businesses with strong credit or a long operational history, as this may lead to more favorable Annual Percentage Rates (APRs).1

 

 

What is a Business Auto Loan?

 

A business auto loan, also known as a commercial auto loan, functions much like a standard consumer auto loan but is specifically for vehicles used in business operations.2

 

Here’s how it generally works:

  1. Application and Approval: You apply for the loan, and if approved, the lender provides funds to cover the vehicle’s purchase price (up to the approved loan amount).3

     

  2. Repayment: You repay the borrowed amount, along with accumulated interest and any fees, through fixed monthly installments over a set period. Typical loan terms range from one to eight years.
  3. Secured Loan: Both consumer and business auto loans are secured loans.4 This means the vehicle itself serves as collateral.5 If you fail to make payments, the lender has the right to repossess the vehicle to recover their losses.6 This collateralization often results in a lower APR or interest rate compared to unsecured loans, as the lender’s risk is reduced.7

     

 

Business Auto Loan Requirements

 

Business loan requirements are generally more stringent than those for consumer loans and can vary by lender. Common requirements include:

  • Business Purpose: The vehicle must be used exclusively for business operations.
  • Time in Business: Lenders often require a specific minimum operating history for your business (e.g., at least six months, one year, or two years).8

     

  • Annual Income: Your business needs to demonstrate a certain level of annual revenue to prove repayment capability.
  • Documentation: You’ll typically need to provide business tax returns, financial statements, and other relevant business documents.9

     

  • Creditworthiness: Lenders will assess your business credit report and, in many cases, your personal credit score to determine your creditworthiness.10

     

Vehicle Restrictions: Some lenders impose specific restrictions on the vehicles they will finance.11 For instance, Bank of America may not issue a business auto loan for a vehicle older than five years.12

 

 

Where to Find a Business Auto Loan

 

Business auto loans are available from a variety of sources:

  • Brick-and-mortar banks and credit unions: These traditional institutions often offer competitive rates, especially if you are an existing account holder.13

     

  • Online small business loan lenders: These platforms can offer more streamlined application processes and may have more flexible eligibility criteria for certain businesses.14

     

It’s always a good idea to shop around and compare offers from multiple lenders to ensure you secure the most favorable terms for your business needs.

 

Business Auto Loan Lenders

 

Here are some prominent lenders offering business auto loans, along with their notable features:

  • Bank of America:
    • Starting APR: 6.04%.
    • Discounts: APR discount for enrolling in the Preferred Rewards for Business program (0.25-0.50%).
    • Perks: Provides free business credit scores and a 30-day rate lock program.15

       

    • Eligibility: Generally requires at least two years in business and $250,000 in annual revenue. Vehicles typically must not be more than five years old.16

       

  • Crest Capital:
    • Specialization: Offers fleet financing, specializes in private party financing.
    • Vehicle Age: No model year restrictions for used trucks, making it suitable for older vehicles.
    • Loan Amounts: Ranges from $50,000 to $1,000,000.
  • National Funding:
    • Eligibility: Relatively laid-back requirements, with a minimum business age of six months and a FICO Score of 575.
    • Vehicle Scope: Finances various automobiles, including those often excluded by others (e.g., taxicabs), as well as heavy equipment.17

       

    • Terms: Loan terms span 24 to 60 months, with potential early payoff discounts.18

       

  • PNC Bank:
    • Eligibility: Requires at least three years in business for loans between $10,000 and $250,000.
    • Terms: Offers longer maximum loan terms, up to 72 months.
    • Transparency: Provides detailed eligibility guidelines on its website, which is uncommon for banks. Applications are generally over the phone or in person.
  • Taycor Financial:
    • Newer Businesses: May be available to businesses operating for less than two years through their new business program.
    • Application Process: Simple application process; requests under $150,000 can be approved in as little as two hours with a one-page application.
    • Decisions: Quick approval decisions.
  • Truist:
    • Financing Scope: Can finance up to 100% of the vehicle purchase price, plus an additional 10% for “soft costs” (taxes, license, tag, delivery fees).19

       

    • Application: Can apply online or in person.20

       

    • Terms: Offers long loan terms, up to 75 months for small business auto loans and 84 months for commercial vehicle and equipment loans. Maximum loan amount is $250,000.

 

How to Get a Business Auto Loan

 

The process for obtaining a business auto loan is similar to a consumer auto loan but typically requires more documentation:21

 

  1. Evaluate Your Budget: Analyze your business finances to ensure you can comfortably afford the monthly loan payments. Missing payments can severely harm your business credit score.22

     

  2. Review Your Credit: Check both your personal and business credit scores. Aim for a business credit score of at least 80 and a personal credit score of 670 or higher to qualify for the most competitive APRs.
  3. Choose a Vehicle: Lenders will require specific details about the vehicle (VIN, year, make, model, odometer reading) and the loan amount will depend on its purchase price.23 Ensure the vehicle meets any lender-specific restrictions.

     

  4. Shop for a Lender: Target lenders that specialize in your specific vehicle type (e.g., semitruck financing).24 Prioritize lenders offering a prequalification process to compare offers without a hard credit inquiry.

     

  5. Formally Apply: Be prepared for a more involved application than a consumer loan. You’ll likely need to provide a business plan, financial statements, business tax returns, and Articles of Incorporation, in addition to personal documents.25

     

  6. Sign Loan Agreement: Carefully review all terms and conditions before signing. Funding times can vary significantly.

 

Benefits of a Business Auto Loan

 

Financing your business vehicle with a business auto loan offers several advantages:

  • Increased Liquidity: Preserves your business’s cash reserves by spreading the vehicle cost over time, making it easier to manage large expenses.26

     

  • Separates Finances: Helps keep personal and business finances distinct, simplifying bookkeeping and tax filing.27

     

  • Equipment Financing Availability: Many business auto lenders also offer equipment financing, allowing you to fund other essential assets, including specialized commercial vehicles.
  • Potential Personal Asset Protection: Depending on your business entity and the loan contract’s terms (especially if no personal guarantee is required), your personal assets may be protected if your business defaults.28

     

  • Potential Tax Benefits: While dependent on vehicle use, you might be able to deduct loan interest and take advantage of depreciation write-offs (like Section 179) on your business vehicle.29 Maintaining detailed records and consulting a tax professional is crucial for maximizing these benefits.

     

 

Business Auto Loans vs. Business Auto Leases

 

Both options provide access to a business vehicle, but they differ significantly:

Feature Business Auto Loan (Buying) Business Auto Lease (Renting)
Ownership You own the vehicle at the end of the loan term. You “rent” the vehicle and return it at lease end.
Monthly Payments Generally higher. Generally lower.
Flexibility to Change Less flexible; selling or trading in is needed to change. More flexible; can swap vehicles at contract end.
Insurance Costs Generally lower, as less restrictive. Usually higher, due to mandated high liability limits.
Mileage Restrictions None. Typically has a mileage cap; penalties for exceeding.
Wear and Tear Your responsibility. Penalties for excessive wear and tear.
Long-Term Cost Often cheaper in the long run if you keep the vehicle. Can be more expensive if continually leasing or buying out.

 

Alternatives to Business Auto Loans

 

If a dedicated business auto loan isn’t the best fit, consider these alternatives:

  • SBA Loan: Government-backed loans (e.g., SBA 7(a) loan) are partially guaranteed, making them easier to qualify for.30 They can be used for various business expenses, including vehicle purchases, offering amounts up to $5 million with terms up to 10 years for equipment.

     

  • Business Line of Credit: A revolving credit facility similar to a credit card.31 You can borrow up to a credit limit as needed and only pay interest on the amount borrowed. While flexible, it requires disciplined management to avoid accumulating excessive debt. It can also help build business credit.

     

  • Personal Loan: While generally easier to qualify for and potentially usable for business, a personal loan for business purposes means you are individually liable for the debt, putting your personal assets at risk.32 This option blends personal and business finances, which can complicate bookkeeping and tax matters.