Best Business Auto Loans For Small Businesses In 2021
From equipment to commercial real estate, it takes many resources to run a successful business. For many businesses, vehicles are another vital part of their operations. Whether it’s to deliver products to customers, drive sales, or commute from one location to another, many businesses need reliable, dependable vehicles.
However, most small businesses don’t have the capital to purchase a vehicle with cash. A lack of capital is an even bigger problem when a business needs to buy multiple vehicles. The solution: obtain a business auto loan. Read on to find out more about the different types of business auto loans, why you should consider a loan, and what to expect during the loan process.
Read more below to learn why we chose these options.
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Best Auto Lenders For Small Businesses
The following lenders offer business and commercial auto loans that are suitable for a variety of small business needs. These business auto financing options include bank loans, SBA loans, and alternative online lenders. This list also contains good credit, bad credit, and fair credit business lenders.
1. SmartBiz: Best For Online SBA Auto Loans
SBA loans are low-interest, long-term bank loans backed by the US government. If you meet SBA borrower qualifications and need a $30,000+ business vehicle loan, SmartBiz is a great place to find a loan to purchase a commercial vehicle. SmartBiz works with SBA-approved banks to streamline the SBA loan application process, allowing business owners to apply online with minimal hassle.
Compared to other online lenders, SmartBiz takes a little longer — it’ll be at least a week after you accept your loan offer before you see any funds — because of the SBA paperwork and processing requirements. Still, SmartBiz is faster than securing a traditional SBA loan from a bank. SmartBiz is also a highly reputable company that discloses all its terms and fees and doesn’t tack on sneaky hidden fees or terms.
SmartBiz SBA loans range from $30,000 to $350,000, and you’ll have up to 10 years to pay it off. To qualify, you’ll need at least two years in business and a minimum credit score of 650.
2. Wells Fargo: Best Bank For Large Commercial Auto Loans
Wells Fargo Equipment Financing
Wells Fargo is a bank lender that offers equipment loans for businesses that need financing for commercial trucks, trailers, and specialty vehicles. The minimum loan amount is $35,000, making this bank a good choice for established transportation-related businesses looking for larger loans and leases. Some examples of companies that might use Wells Fargo to finance their business vehicles include fleet owners, towing companies, and bus tour charters.
Wells Fargo equipment loan terms range from 12-84 months, and you’ll need at least three years in business and fair credit.
3. Bank Of America: Best Bank For Small Business Auto Loans
Bank Of America Business Loans
Bank of America offers business auto loans of $10,000 and up, making this lender a suitable option for a smaller auto loan to purchase a less expensive vehicle, such as an automobile or light truck. BofA has competitive rates and terms — APRs start at 2.49%, and terms are 48-72 months. You can even apply for this bank loan online. A potential downside is that BofA has stricter borrower requirements than some other business auto financing companies; you’ll need at least two years in business and good credit to qualify.
Qualified applicants can use a Bank of America Business Auto Loan to purchase a new or used automobile, van, or light truck from a franchise dealer or approved independent dealer. You cannot use this loan to buy a large commercial vehicle weighing more than 2.5 tons (such as a dump truck or tractor-trailer); however, you can use a Bank of America Equipment Loan to finance this type of vehicle.
4. Crest Capital: Best Alternative Lender For Business Auto Financing & Leases
Crest Capital is an alternative lender specializing in business vehicle financing, providing an easy online application for business auto leases and loans. Unlike many bank lenders, Crest will finance used vehicles and private-party sales. However, you will need at least two years in business and fair credit to qualify.
Crest finances all types of business vehicles, including work trucks, trailers, vans, and specialty vehicles. The only vehicles Crest does not finance are passenger cars and trucks for owner-operators (though it does finance individual 18-wheelers for non-transportation companies).
Crest Capital is refreshingly transparent when it comes to disclosing terms and borrower qualifications. Loans can be small enough for mom-and-pops or as large as $1,000,000; term lengths range from 24-72 months.
5. Capital One: Best Bank For Bad Credit Business Auto Loans
Capital One Business Loans
Capital One Business Loans division offers equipment and vehicle loans for small businesses starting at $10,000, with terms as long as five years. Though rates may not be as low as Bank of America or Wells Fargo, Capital One business auto loans have the advantage of being available to businesses with bad credit.
Capital One also has fixed monthly payments and a loan-to-value of up to 100% for qualified buyers. To qualify, you’ll need to have been in business for at least two years and have (or open) a Capital One business checking account. Unfortunately, the company doesn’t disclose much information about its commercial vehicle loans on its website, and financing is limited to businesses in certain states.
Business Auto Loans VS Personal Auto Loans
Commercial (business) auto loans and personal (consumer) auto loans have a similar structure as far as terms and fees. However, there are a few key differences between these two loan types.
- Business auto purchases and financing fees are tax-deductible
- Business auto loans help your business build credit
- Purchasing a vehicle through your company will reduce your personal liability for the vehicle but will likely have higher insurance costs
- Personal (consumer) auto loan offers are based on your personal credit history; commercial vehicle financing companies also factor in your business credit score, time in business, and business revenue
Typically, an established business that requires a vehicle will benefit from financing that vehicle through a commercial vehicle loan. If you have a small, newer business but good personal credit, you may have better luck securing a consumer car loan. Just make sure you consider all of the liability, insurance, and tax implications.
Business Auto Loans VS Leases
When evaluating funding options for business vehicles, there are two major options to consider: commercial auto loans and commercial auto leases. A business owner needs to understand the differences between the two before starting the application process.
Commercial vehicle loans are used to pay for the vehicle over time (typically five years, though terms can be longer or shorter). The borrower pays a set amount each month for the entire length of the term. This payment applies to the loan’s principal amount as well as interest paid to the lender for advancing the money.
During the repayment process, the vehicle’s title will list the lender as a lienholder. That gives the lender the right to repossess the vehicle if the borrower goes into default. However, once the borrower has paid the balance in full, the lender will no longer be a lienholder. The title then goes to the borrower, giving them full ownership of the car. They can continue to use the vehicle, trade it in for another vehicle, or sell it outright.
The other type of financing is leasing. Leasing is more like a long-term rental. A lessee (in this case, the business owner) agrees to make monthly payments on the vehicle. The lease period will be for a set period, such as three years; during that time, the lessee can only drive the car for a set number of miles per year. The vehicle must be well taken care of and not damaged while in use.
At the end of the lease period, the business owner has two options: they can pay off the balance of the lease and own the vehicle, or they can return it. When business owners return leased vehicles, they have the option to enter into another lease for a newer vehicle. Through a lease, the business owner will never own the car unless the vehicle is paid for with cash at the end of the lease period.
- Loans typically cost more money upfront and have higher monthly payments compared to a lease
- Leases typically have higher insurance costs compared to a loan
- Loans are more cost-effective if you want to keep the vehicle for an extended period, whereas leases are less expensive for short-term vehicle use
- Loans are better for businesses that rack up a lot of mileage (leases typically restrict the number of miles driven annually)
Though a loan or a lease may work better for your business, depending on your needs, repeatedly entering into leases is ill-advised, as it will result in thousands of dollars in payments without ever actually owning the vehicle.
How To Get A Business Auto Loan
Once you find a business vehicle you want to purchase, you can start the process of obtaining a loan. To secure a business auto loan, you’ll need to gather your necessary business documentation, select a lender, and ideally do some comparison shopping before signing on the dotted line.
Gather Your Documents
While business car loan requirements vary by lender, an applicant should expect to gather similar documentation regardless of the chosen lender. Business and personal documentation are required to receive a business auto loan. Items such as business licenses and articles of incorporation will be required to prove ownership of the business. A federal Employer Identification Number will also be needed for the application. Sole proprietors without an EIN will be required to submit their Social Security numbers.
The borrower must prove they can make the monthly payments on the loan or lease by submitting documents, such as tax returns, cash flow statements, and bank statements.
Select A Lender
Once you have gathered all of your application materials, it’s time to find a reputable lender to work with and prepare your application. While it is possible to go to an auto dealership to obtain a commercial vehicle loan, this usually results in multiple inquiries on a credit report, which can lower a credit score. Instead, business owners should shop around on their own and have funding in place before making the purchase. The options on this list are all good choices, but you may wish to go through your business bank or credit union or seek out another alternative lender.
Your application was accepted, and now you have a loan offer. Great! But before making your final decision, it can be helpful to seek out more than one loan offer for comparison purposes. With online lenders, in particular, it is easy to get pre-approved for multiple loans without triggering any hard credit checks (the kind that dings your credit). When comparing loan offers, you’ll want to consider things such as the down payment amount, interest rate, monthly payment, term length, and collateral.
So what’s typical? Lenders reserve their best commercial auto rates for borrowers with the strongest credit histories and proven track records of cash flow. Someone with excellent credit should be able to get an interest rate well under 5%, while a startup or bad credit business owner could see rates as high as 20%. On average, business owners should expect to put 10% of the total vehicle cost toward the down payment or as much as 15-25% down on a commercial truck. Maximum terms vary, but 60 months is a typical repayment term for most auto loans. Most small business loans also require you to sign a personal guarantee as collateral.