What is a Commercial Auto Loan? How Can You Get One?

If your business requires a vehicle but you ’ re short on cash, you will need to obtain a commercial car loanword. here ’ s what you should know .

Commercial auto loans explained

commercial car loans are used by businesses to buy vehicles needed for work-related operations, such as visiting clients, completing jobs and transporting equipment, among others. This type of lend is offered by banks, recognition unions, finance companies and alternative lenders. It ’ s quite similar to a consumer car loan, except far more software documentation is required. These loans are available for new and use vehicles, equally well as for refinancing existing loans. You can use a commercial vehicle loan to purchase a vehicle for personal and clientele use, but be sure to factor only business-related costs when claiming your vehicle as a business expense .

What to look for in a commercial auto loan

When considering commercial car lend lenders, stress on down payment requirements ( if any ), interest rates and the repayment term. many lenders will cover up to 100 % of the monetary value of a new fomite, and we ’ ve seen business car loanword rates angstrom low as 2.49 % APR. But this may not be the lawsuit for use vehicles — many times lenders won ’ triiodothyronine finance cars and trucks that are five years or older. That ’ second because vehicles are considered depreciate assets and can be hazardous to finance adenine well as expensive to buy, which is why many businesses choose to lease rather. still, purchasing could be a good option if your company needs the vehicle long term and wants to write off the disparagement on its tax returns .

Commercial truck loans

commercial hand truck loans are used to finance fare vehicles ( semi-trucks ) or vocational trucks ( shit trucks, cement trucks and other sour vehicles ) normally used in industries like construction, rescue, neutralize and farm. Truck finance is available through option lenders and big national banks — smaller banks don ’ thyroxine typically offer this type of finance. repayment terms can extend up to 10 years with pastime rates ranging from 5 % to 30 %.

like to business car loans, the truck serves as collateral. Despite the loan being secured, lenders can still be hesitant to offer truck financing due to high business bankruptcy rates and dearly-won ongoing expenses related to oil changes, fuel, repairs and sustenance. other gamble factors include :

  • Being a new business
  • Having poor credit
  • Having low cash reserves
  • Buying an old truck

New owner-operators tend to have a tough meter getting approved for a loan because of a miss of accredit and gross history. Having any of these hazard factors can lead to a higher sake rate or a down payment that ranges from 10 % to 50 % .

Commercial truck loans vs. equipment loans

Some lenders finance large commercial vehicles using equipment financing. You may find lower rates, but possibly boldness fees and shorter terms .

Typical commercial auto loan rates and terms

In the chart below, we show the typical terms, features, and rates associated with commercial car loans .

Loan Amount

$5,000 to $500,000

Loan-to-Value Ratio Up to 100% of vehicle value
Uses New and used vehicles, refinancing
Interest Rate 2.49% to 30%
Fees May have an application fee or opening fee; down payment may be required
Loan Terms Up to 120 months

How to get a commercial auto loan

To obtain a commercial car loan, you must collect both your business documentation and personal records. The process of securing a loanword involves a lot of training, as you ’ ll have to illustrate your loan needs while assuring the lender that its gamble is minimal .

1. Choose a vehicle and lender

The fomite you need would depend on your occupation — for example, a cake delivery company may require a refrigerated van, while a food hand truck business may need a truck that accommodates ovens. Keep your cash reserves in take care, excessively : The price or historic period of the vehicle may affect the size of your down payment ( if the lender requires one ), and the more expensive or older the vehicle, the larger the down requital might be .

2. Gather loan documents

You may need to prove that you ’ re the owner of a business with copies of commercial enterprise licenses, partnership agreements and limited liability company ( LLC ) or corporation documents. Depending on the lender, owners that hold at least a 20 % stake in the business may need to sign and submit personal fiscal statements, including personal credit score and credit history, to provide some reassurance that the loan will be repaid. It ’ south besides a good estimate to have a loan proposal handy, detailing your business, lend needs and fiscal statements .
You may besides need to provide your ship’s company ’ mho :

  • Employer Identification Number (EIN
  • Tax returns
  • Bank statements
  • Cash flow statements

If you ’ re looking to refinance an existing vehicle under a commercial loanword, the lender will assess the fomite information, your business and your background. If you ’ re a sole owner and the business is under your Social Security number, you ’ re both the borrower and the guarantor, meaning that you ’ re personally liable for repaying the loanword.

3. Research lenders and apply

commercial car loans are available through both traditional fiscal institutions and alternative lenders. There are lending products specifically for financing commercial vehicles, but some lenders may offer vehicle finance through equipment loans. You should besides keep in mind that a lender may only finance used vehicles that meet sealed mileage or old age requirements .

Commercial auto loans with bad credit

While you can secure a lend despite having bad credit, you ’ ll often pay higher interest rates. Lenders may besides require a personal guarantee, a provision that holds you personally liable for repaying the loan. They do this because bad credit typically signifies a history of not paying loans on time or multiple unsuccessful lend inquiries — a personal guarantee reduces this risk .
generally speaking, we recommend that borrowers evaluate their lend needs while besides considering early commercial fomite finance options, such as rent. If you have enough cash reserves, purchasing a new or secondhand vehicle outright can help you avoid high APRs typically associated with having first gear or no credit .

Commercial auto loans without a personal guarantee

many clientele owners try to avoid having to personally guarantee a modest clientele lend. That ’ second because if the business is unable to make payments, the lender will go after the owner ’ s money and assets. inactive, there ’ s a good casual you can qualify for a commercial car loan without a personal guarantee if you have a eminent business credit score and you ‘ve been in business for a while .

Buying vs. leasing

While buying a fomite for a humble business has its advantages and can make sense for many businesses, rent is besides worth considering. In the table below, we compare these options .



Purchasing a vehicle may require a down payment Leasing a vehicle may not require a down payment, but you may have to pay the first month’s payment or a security deposit upfront
There are no mileage limits, but vehicles with higher mileage will depreciate faster There are limits on mileage, and businesses may have to pay more for additional miles
Business owners can keep the vehicle, sell it to an employee, trade it in or negotiate a purchase with the dealer Business owners can decide between buying or turning in the vehicle
Generally longer repayment terms and higher payments Generally shorter monthly terms and lower monthly payments
Vehicles depreciate over time, which brings down their value Owners can turn in the vehicle and lease a newer or different model
Businesses may qualify for depreciation tax deductions Leased vehicles may be tax-deductible based on mileage or actual expenses

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reference : https://www.peterswar.net
Category : Finance

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