The Ultimate Guide to Commercial Auto Loans
Get the real information you need to know about commercial auto loans for your business.
So, what exactly is a commercial auto loan?
A commercial auto loan helps businesses purchase vehicles for commercial use.
Unlike personal car loans, these are tailored for your business, whether you’re a sole proprietors just starting out or own a larger corporation expanding a fleet of vehicles.
Why would a business need a commercial auto loan?
Here are a few scenarios:
Delivery Services: Whether it's a local florist or a national courier service, vehicles are the backbone of their operation. A commercial auto loan can help them get the trucks or vans they need to ensure timely deliveries.
Construction and Contractors: Think of those heavy-duty trucks hauling tools, equipment, and supplies. Those usually come from financing options tailored for businesses.
Sales and Representatives: For businesses with a strong on-the-road sales force or representatives visiting clients, having a reliable set of wheels is crucial.
The terms, interest rates, and qualification criteria differ significantly from personal auto loans.
We’re going to show you the differences, how to qualify and what to look for in commercial auto financing.
So, here are the basics of commercial vehicle loans…
What Are Commercial Auto Loans?
Simply put, a commercial auto loan helps businesses buy vehicles.
Unlike your regular car loans, these are exclusively for business use.
Got a business? Need a vehicle? This loan's for you.
Which Vehicles Can You Finance?
Almost any vehicle meant for business, really:
- Trucks & Vans: From delivery vans to big rigs.
- Specialized Vehicles: Think tow trucks, catering vans, or refrigerated trucks.
- Regular Cars: For those client meetings or sales calls.
Why Choose a Commercial Auto Loan?
Here's the scoop:
- Cash Flow: Don't drain your business savings. Spread out vehicle costs over time.
- Tax Advantages: Commercial vehicle financing can offer tax deductions. Always consult with your tax professional.
- Build Business Credit: Boost your business's credit score by making timely payments.
- Flexible Terms: Find loan terms that match your business's needs and budget.
Whether it's a single car or a fleet of trucks, these loans make it happen.
Got Credit? That Helps.
The world of commercial auto loans revolves around credit, both personal and business. The better it is, the smoother your ride will be to secure that loan.
Startups versus established businesses:
Fresh on the Scene (Under 2 years): It's trickier, but if you've got decent credit, there’s a decent chance. New doesn't mean ineligible.
Seasoned Players: Well-established? Bravo! The longer you’ve been in business, the looser the criteria are.
In some cases, good established business credit can pave the way for "corporate-only" financing. That means your business stands on its own, without needing your personal credit as backup. In general, you should have a minimum of 5 years in business and have financed at least 7 times for your business in the past.
What Paperwork Will You Need?
Most of the time, it's straightforward:
Simple Transactions: For many vehicle deals, it's "application-only." That means no bank statements or financial statements are needed.
We always start with a soft-credit pull. So, you get a clear picture of where you stand without any dents to your credit score. No one will know you were shopping for cash.
Purpose: Personal loans are for your daily rides—think commuting or weekend trips. Commercial loans? Strictly business. Deliveries, client meetings, you name it.
Tax Benefits: Business financing can bring tax deductions. Your SUV for family trips? Not so much.
Loan Terms: Commercial loans might offer more flexible terms tailored to business needs. Personal loans? Usually more rigid. With that in mind, commercial loans usually have slightly higher payments than personal loans.
Credit Consideration: Commercial loans sometimes weigh in your business credit, while personal loans are all about your individual score.
Pros & Cons: The Quick Lowdown
|Personal Auto Loans||Commercial Auto Loans|
Example: Sarah wants a car for her daily commute. She opts for a personal loan, knowing she won't use the car for business.
Example: Joe's Catering needs a van for deliveries. Joe chooses a commercial loan, leveraging potential tax deductions and building his business credit.
Some example scenarios:
Launching a Start-Up: If you're just setting up your business and need a vehicle, but your credit isn’t strong, a personal loan might be the easy route. But if you have decent personal credit, a commercial loan can kickstart your business credit journey.
Established Business Expansion: Your business is booming, and you need more vehicles. Go commercial. Harness those tax advantages and cater the loan terms to your business model.
After talking to thousands of people over the years, want to guess the question we hear the most?
“What are commercial vehicle rates?
And the answer is always… “it depends…”
- Credit: Whether it's personal or business, your credit one of the strongest factors. Lenders look at your score, your installment history, how long you’ve had credit for, and other factors
- Time in Business: Startups will likely have higher rates. At certain ages (2, 5, 10) your rates are likely to be lower
- Type of vehicle: Some vehicles are riskier to finance than others and rates will reflect that. Very old vehicles, or vehicles in very risky industries (such as food trucks) will be harder to finance and carry higher rates.
- Economic environment: General borrowing rates in the economy affect vehicle finance rates.
Decoding Loan Terms & Conditions
Loan Term Length: This is how long you'll be paying off your loan. Commercial vehicle loans generally have available lengths from 24 to 60 months, although 72 months can be an option sometimes for newer vehicles.
Down Payment: Down payments vary. In most cases a documentation fee or a first and last payment are all that is needed. Other times, a down payment is required, which can range from 5-20% in most cases and depends on the situation.
So… how do you find the right lender for your commercial vehicle purchase?
Reputation is King: Look for lenders with glowing reviews, strong industry presence, and solid testimonials. History can tell you a lot about future relations. Check out our reviews here.
Flexibility: A lender with a one-size-fits-all approach might be a waste of your valuable time. We’re not the right fit for everyone, but we work with 25 different lenders and 75 different credit portfolios – so in most cases, if there’s a way to help you, we’re going to find it.
Speed: Time is money. We have heard horror stories from customers waiting a week or more to hear about a simple transaction with their bank. In most cases we can approve a deal within 24 hours.
Red Flags in the Lending World
Too Good to Be True: Beware of deals that seem unreal. Extremely low rates or promises that feel exaggerated usually have a catch.
Hidden Fee Fiascos: If the lender isn't upfront about all their charges, tread cautiously.
Pressure Tactics: High-pressure sales or rush tactics? They're trying to push you into a hasty decision. Step back.
If you need help financing a vehicle for your business, we can help. You can call us at (866) 631-9996 or fill out the form below to get started.