Advantages of Auto Financing for Your Business

Tax Deductions: Make The System Work for You

Have you heard the saying, "It's not about how much you make, but how much you keep"?

It rings especially true here.

When you finance a car through your business, the tax gods smile down on you with a series of potential write-offs.

Here’s the scoop…

Vehicle depreciation can be deducted from your taxes. Depending on your situation, you can depreciate the car over its useful life, or you may be able to write off the entire purchase price using Section 179 of the tax code.

Cash Flow Management

You could just pay cash for a business vehicle (assuming you have the available cash).

Most advisors would tell you not to do that though.

First, everything you finance under your business builds business credit, potentially making future borrowings less expensive in the form of lower payments. Second, there’s a reason why even companies like Apple and Google, who are sitting on billions of cash, still borrow money.

It usually makes more sense to borrow and pay for equipment as you use it than to deplete working capital for long-term assets. If you make a greater return on investment from use of the vehicle than the finance charges, financing often makes sense.

Branding

Consider this…

A business vehicle isn’t just transportation.

It’s also a moving advertisement.

Depending on your business, the additional customers you get from having your logo, phone number, or website displayed on your vehicle might even cover the payments.

Key Considerations Before Financing a Business Vehicle

Purpose of the Vehicle: Business, Personal, or Both?

It’s important to ask what the vehicle is *really* for.

If it’s exclusively for business, no problem.

But… if you’re using the vehicle for personal reasons too, it gets tricky, both from tax and regulatory standpoints.

If you’re going to use the vehicle for any personal use, it’s important to log all use and categorize that use as business or personal.

If you don’t, the IRS can classify all use as personal which takes away all of those sweet tax deductions.

Impact on Business Credit: Double-Edged Sword

Think of your business credit as your company's report card. Taking a loan can swing it two ways:

•  Pay timely, and your business might just get an A+. This can pave the way for better terms on future loans or business deals.
• Mess it up, and you're in for detention. Missed payments or defaults can stain your business credit, making future financing tougher and possibly more expensive.

Insurance Implications: It's Not Just About Coverage

Personal car insurance is, well, personal.

But when the vehicle is for business, things change.

Commercial auto insurance often comes with higher limits because, in the event of an accident, businesses can be sued for more.

The flip side? It might be pricier than personal insurance.

But hey, it's about safeguarding your business assets and reputation.

Worth every penny, right?

Qualifying for Business Car Financing

Think of your business's credit history as its financial resume. Just as you'd proudly present a flawless CV to a potential employer, you'd want a sparkling credit report for lenders.

Here's the drill:

Solid Credit History:

This is your track record.

Timely loan repayments, managing credit lines wisely, and avoiding defaults can give you the financial halo every lender loves to see.

In most cases, lenders will take both your business and personal credit into account. Especially important are installment loans – like for vehicles. A history of having made car payments successfully for at least 12 months (ideally 24) will help you get future loans.

Your business’ age:

While it’s not impossible to finance a car for a startup business, it’s not easy either.

If your business is at least 2 years old, it’s considerably easier to finance a vehicle (or anything else) for your business.

As a rule of thumb, if you have decent credit and a history of financing vehicles in the past, you can probably get qualified to finance a business vehicle.

If your credit isn’t so great, but you have a track record, you might get qualified to finance a business vehicle.

Startup with lousy credit? It’s a big maybe and if you’re lucky enough to get an approval expect a big down payment.

Want to learn more?  Check out our Ultimate Guide to Commercial Auto Loans

Documentation:

If you finance through a bank, you might be asked to provide financial statements and tax returns.

If you finance with a dealer or with a private financial company (like us) you will rarely need to provide more than a credit application to get qualified for most vehicles.

If you want to look into financing a vehicle for your business, give us a call at (866) 631-9996 or fill out the form below.