If you’re looking to purchase a new or used car or specialized vehicle for your business, a business auto loan could be the way to go.

In this article, we’ll delve into this specialized lending product and how it can benefit small-business owners on the move.

What Are Business Auto Loans?

Having the vehicle owned and registered by an official business entity may limit your personal liability.

Also known as commercial auto loans, business auto loans allow business owners to finance the purchase of vehicles that will be put to use in day-to-day business operations. With an auto loan, you can get the right vehicle for the job while building credit, optimizing cash flow, and limiting personal liability. As lending products widely available from traditional financial institutions, they’re pretty similar to personal car loans, but we’ll highlight a few noteworthy differences here.

Types of Vehicles You Can Buy

Business auto loans can enable you to purchase a wide range of vehicles, including:

• Company cars, including executive sedans and other cars for driving to worksites and entertaining clients
• Delivery vehicles, including vans and refrigerated trucks that can be outfitted to carry your specific products
• Pickup trucks for transporting heavier loads and operating in construction sites or other rugged environments
• Passenger vans or buses that can be used for shuttling large tour groups, service teams, or conference goers
• Specialty vehicles, which run the gamut from cement mixers to food trucks and can be extensively customized

If you need to need more than one set of wheels to drive your business forward, you’ll want to look into fleet financing. This allows you to apply for and pay down a single loan, rather than being responsible for separate loans for separate vehicles. Otherwise, fleet financing typically comes with similar terms, requirements, and benefits. You may also be able to get volume discounts from a dealership or manufacturer.

Secured vs. Unsecured

Like personal loans, business auto loans are typically secured, which means that the borrower uses the vehicle itself as collateral for the loan. This is good news for newer businesses without an extensive credit history or other fixed assets to borrow against. But it also means that if you default on the loan, the lender has the right to repossess the vehicle.

Generally, secured loans come with lower interest rates, increased borrowing limits, and longer terms. Unsecured loans, on the other hand, don’t require collateral, but they often come with significantly higher costs.

Key Differences

One distinction between business and personal auto loans is that business lenders may require that you use the vehicle only for business purposes – like transporting goods, providing services, or visiting clients. If you value work-life flexibility, this could be a major drawback. But if you’re trying to keep your assets and finances separate, this could help you stay on the right track.

With a business auto loan, a vehicle can be registered under your personal name or your company’s name. Having the vehicle owned and registered by an official business entity (like a corporation or LLC) may limit your personal liability, both for any accidents or damage and for the loan itself. However, depending on the legal structure of your business and the specifics of your loan agreement, a personal guarantee may be required. Consult your lender and insurer
for details.

Potential Benefits

Financing a vehicle with a business auto loan can offer several advantages, including:

• Separating your finances, which can help you streamline bookkeeping and tax filing while limiting your liability
• Building business credit, which is separate from your personal credit score and can facilitate future borrowing
• Conserving working capital for routine and emergency expenses instead of paying for the vehicle all at once
• Taking advantage of tax benefits like deductions for interest, depreciation, gas, tolls, insurance, and more
• Branding your vehicle durably or making other modifications that aren’t possible when you lease vehicles
• Driving without mileage limits or other restrictions on use that leased vehicles generally come with
• Owning the vehicle outright and being able to sell it, trade it in, or leverage its equity at any time you wish

Making the Right Selection

Business auto loans can be a smart solution for getting the vehicle your business needs right now, while managing cash flow and risk. But like everything in business and in life, the answers are never one size fits all, and you’ll need to consider your specific needs, goals, and capacities.

Move Forward

For more information and personalized guidance on business auto loans and other lending solutions, contact your financial institution.