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.
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
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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.