If you want to purchase multiple cars or specialized vehicles for your business, fleet financing could be the way to go.

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

What Is Fleet Financing?

Fleet financing allows you to apply for and pay down a single loan.

Fleet financing allows businesses to finance the purchase of several vehicles of the same type that will be put to use in day-to-day business operations. With fleet financing, you can get the right vehicles for the job while building credit, optimizing cash flow, and limiting personal liability. Fleet financing shares many similarities with business and personal auto loans, but we’ll highlight a few noteworthy differences here.

Types of Vehicles You Can Buy

Fleet financing 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 conferencegoers
• Specialty vehicles, which run the gamut from cement mixers to food trucks and can be extensively customized

Secured vs. Unsecured

Fleet financing products are typically secured, with the vehicles used as collateral for the loan. This is good news for younger enterprises without an extensive business 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 vehicles.

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

The most important feature of fleet financing is that it allows you to apply for and pay down a single loan, rather than being responsible for separate loans for separate vehicles. This can streamline accounting and documentation, and in some cases, it may offer more flexible terms. Consult your lender for specifics.

Additionally, you may be able to get volume discounts and other perks, like maintenance packages and extended warranties, from a manufacturer or dealership. To qualify, you usually need to purchase a minimum number of vehicles at once, and you may need to apply for a fleet identification number (FIN).

If you’re new to buying business vehicles, you need to know the distinctions between fleet financing and personal auto loans. Business lenders will likely require that you use the vehicles only for business purposes – like transporting goods, providing services, or visiting clients.

With fleet financing, vehicles are typically registered under your company’s name. Having the vehicles 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

Fleet financing can offer several advantages, including:

• 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 vehicles all at once
• Taking advantage of tax benefits like deductions for interest, depreciation, gas, tolls, insurance, and more
• Branding your vehicles 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 vehicles outright and being able to sell them, trade them in, or leverage their equity at any time
• Being eligible for volume discounts, maintenance and service packages, and other economies of scale

Making the Right Selection

Fleet financing can be a smart solution for getting the vehicles your business needs right now, while managing cash flow and risk. But like everything in business and in life, the answers are not one-size-fits all, and you’ll need to consider your specific needs, goals, and capacities.

If you need to purchase only one vehicle for your company, look into business auto loans. These are structured more like personal auto loans, although they may come with restrictions on personal use and other features common
to fleet financing.

Move Forward

For more information and personalized guidance on fleet financing and other lending solutions, contact your financial institution.

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