Guide to Business Car Loans

Small Business Auto Loan: What Is It? How to Apply?; Do you need one or more vehicles for your small business? Learn about small business auto loans that may be available to you.

Susan GuilloryUpdated August 23, 2023

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If your business relies on one or more cars, vans, or trucks, you may want to look into getting a business auto loan — or refinancing an auto loan you already have.Business auto loans typically use the vehicle itself as collateral, so they often come with attractive rates and terms. They can also be easier to qualify for than other types of business loans, and typically don’t require a personal guarantee.Here’s a closer look at business vehicle financing, including how these loans work, which lenders offer them, and how to get an auto loan for your small business.

What Is a Business Auto Loan?

A business auto loan is a type of financing that you can use to purchase a vehicle for your company. This type of loan can typically be used to buy cars, vans, and some trucks. For a heavier-duty vehicle or commercial truck, you may need to look into getting an equipment loan or commercial truck loan instead.As with secured auto loans for consumers, business auto loans are typically secured with the vehicle you’re purchasing acting as collateral for the loan. If you default on your payments, the lender can seize and re-sell the vehicle to recoup its losses.

How Do Business Auto Loans Work?

Business auto loans work in a similar fashion as consumer auto loan terms: You get financing to buy the vehicle upfront, then pay it back (plus interest and any fees) in monthly installments over a set term.Unlike a personal auto loan, however, the vehicle you are buying must be for business purposes. In fact, the lender may ask you how you plan to use the vehicle and require supporting documentation (such as a business plan or company financial statements).Another difference between business and personal auto loans: For qualified borrowers, some lenders will let you put a business auto loan in your company’s name only. This can protect your personal credit or assets should your business be unable to repay the debt. If you don’t have established business credit, though, you may need to provide a personal guarantee for the loan, which means you will be personally responsible for repaying the loan should your business become unable to make payments.Recommended: How Do Car Loans Work?

Business Auto Loan Amounts

The amount of money you can get with a business auto loan will depend on the lender, the type of vehicle you’re purchasing, and your qualifications as a borrower. Business auto loan amounts range anywhere from $5,000 to $2 million-plus.

Term Length

Maximum terms vary, but 60 months is a typical repayment term for business auto loans.

Repayment Structure

Business car loans are often structured like other types of small business loans. You receive the entire principal upfront then start repaying it (plus interest) in monthly installments for a set term.In some cases, a business auto loan might be structured like a balloon-payment loan. This involves paying a set amount monthly then making a balloon payment — a one-time, larger-than-usual payment — at the end of a loan. Before you enter a business auto loan agreement, it’s a good idea to fully understand the loan’s repayment terms.

Commercial Truck Loans

If you’re looking to purchase one or more semitrucks for your business, you may need to look for a commercial truck loan rather than a commercial auto loan. You can get semitruck financing from many lenders, including traditional banks, online business lenders, and alternative lenders that focus entirely on big rig lending. In some cases, commercial truck loans are part of a lender’s equipment loan (or equipment financing) program.

6 Steps To Getting a Commercial Auto Loan

Applying for a commercial auto loan is relatively simple, but a little advance planning can streamline the process:

1. Figure Out Your Budget

A good first step is to consider the max amount your business can afford to spend — both upfront and per month — on a business vehicle. Keep in mind that the total cost will include more than the monthly auto loan payment. You’ll also want to factor in a down payment, lender/dealer fees, insurance, annual registrations, maintenance, and fuel.

2. Review Your Credit

Before you start looking at loans, it’s a good idea to check your business and personal credit scores to give you an idea of what type of loan you might qualify for. Credit requirements will vary by lender. Overall, banks tend to have stricter qualification requirements than alternative lenders. Recommended: How to Check Your Business Credit Score

3. Find the Right Vehicle

Before shopping for a loan, you’ll want to consider what kind of vehicle you want to buy for your business. Business auto loans generally cover vehicles under 2.5 tons. If you’re in the market for a heavier duty vehicle, you’ll likely need to seek out an equipment loan.Also keep in mind that some lenders will only finance new vehicles, while others will finance used business vehicles that meet certain requirements, such as being less than 5 years old or having less than 75,000 miles.Lenders will typically want to see a quote as part of your financing application, so once you’ve found the vehicle that you want, ask the dealer to write up an invoice.

4. Compare Offers

Some lenders will allow you to prequalify without triggering any hard credit checks — the kind that can negatively affect your credit. This typically involves filling out a short form and you’ll often get an answer right away.If you are able to get a few prequalified offers, you’ll want to compare them by looking at their annual percentage rates (APRs). A loan’s APR includes both interest and fees, allowing you to compare offers apples to apples. You can also compare each loan’s required down payment amount, term length, and monthly payment.

5. Apply With a Lender

Once you’ve decided on a lender you’d like to work with, you’ll need to officially apply for the loan. Generally, banks will have a lengthier, more involved application process, while online lenders tend to offer simpler applications and faster funding.The process will vary depending on the lender but, typically, you’ll need to provide your vehicle quote, as well as your company’s key financial statements, bank statements, and tax returns. You may also need to provide personal documents proving your personal income and creditworthiness.

6. Sign!

Once you’re approved for a commercial auto loan, you’ll want to carefully review the loan agreement and make sure you understand all of the terms. If everything looks good, you simply need to sign and return the documents.The turnaround time between signing and funding will vary by lender but can take anywhere from a day or two to a few months.

Commercial Auto Loans with Bad Credit

It may be possible to qualify for a business auto loan with bad credit. That’s because this type of financing typically comes with built-in collateral — should you become unable to make your payments, the lender can seize the vehicle and sell it to recoup its losses. This makes business auto loans less risky to a lender than some other types of business loans.That said, borrowers with bad credit generally don’t qualify for the best rates and terms. In other words, you may get a loan for a lower amount, pay a higher APR, and have a shorter timeline for repayment than a business owner with good or excellent credit. You may also be asked to sign a personal guarantee.

Commercial Auto Loans Without a Personal Guarantee

Because commercial auto loans are typically self-securing, it’s often possible to get one without signing a personal guarantee. However, not all lenders will forgo a personal guarantee on this type of loan. Generally, you’ll need to have a solid business credit score to qualify for a business auto loan without a personal guarantee. You might also be required to make a larger down payment on the vehicle you’re purchasing.

Business Auto Loan Borrower Requirements

Requirements for a commercial auto loan vary significantly depending on the lender. Generally speaking, you may be able to qualify for business auto financing if you have a credit score of at least 620, a minimum of one year in business, and $100,000 or more in annual revenue. However, some online lenders will work with businesses that are just getting off the ground and have lower revenues.

Business Auto Loans vs Personal Auto Loans vs Equipment Financing

You can use equipment financing to buy cars, trucks, computers, furniture, and other supplies for your business. Personal auto loans and business auto loans, meanwhile, can only be used to buy motor vehicles.

Business auto loans	• Can help you buy cars, vans, and trucks for your business • The financed vehicle typically serves as collateral for the loan • Eligibility requirements may require a minimum amount of time in business
Personal auto loans	• Can help you buy passenger cars for your personal use and ownership • The financed vehicle typically serves as collateral for the loan • These are consumer loans, not commercial financing
Equipment financing	• Can help you buy cars, trucks, computers, furniture, and other supplies for your business • The financed equipment typically serves as collateral for the loan • Eligibility requirements may require a minimum amount of time in business

Personal auto loan offers are typically based on your personal credit history, but business auto loan offers are typically based on your business credit score, time in business, and business revenue. Another difference is that getting a business auto loan can help you build business credit, whereas getting a personal auto loan will not have any impact on your business credit. Business auto loans generally cover cars, vans, and small trucks. If you’re in the market for a heavy-duty vehicle for your business, or you’re struggling to get commercial vehicle financing, you may want to consider applying for equipment financing from an online lender.Also keep in mind that purchasing a vehicle through your company will reduce your personal liability for the vehicle. However, it may come with higher insurance costs.Equipment financing can be used to buy or lease qualifying business equipment. Lenders may provide up to 100% of the value of the equipment, or they might require a 10% to 20% down payment for items with a high rate of depreciation, including commercial vehicles.

Other Alternatives to Business Auto Loans

A business auto loan isn’t the only way to finance a vehicle purchase for your business. Here are other alternatives you may consider:

Term Loan

You can apply for a term loan as a source of funding for your business. A term loan gives you a lump sum of money upfront, and you typically have to repay the loan over a fixed period with interest.

US Small Business Administration (SBA) Loan

You can apply for an SBA loan as another source of funding for your business. SBA 7(a) loans can be used for almost any purpose, including buying commercial vehicles for your business.

Business Line of Credit

You can apply for a business line of credit if you need financing for your business. An unsecured business line of credit does not require any collateral, whereas secured business lines of credit do. Any asset of value can serve as collateral, such as equipment, real estate, or intellectual property.

Buying vs. Leasing

When shopping for a business vehicle, you may have a choice of purchasing the vehicle outright (with financing) and owning it, or leasing the vehicle instead. There are pros and cons to leasing vs. buying a vehicle to consider.Since lease payments don’t have interest, they usually cost less than auto loan payments per month. However, unlike with an auto loan, you don’t own the car and have to turn it in at the end of your lease.Generally, if you want to keep the vehicle for an extended period of time, you may be better off buying the vehicle with a loan. This way, you can rack up the mileage, and don’t have to worry as much about wear and tear on the car. And, in the long run, business auto loans tend to be cheaper than business car leasing.However, if you want to upgrade your business vehicle every few years to a newer model, or you don’t plan on racking up a large number of miles, an auto lease could be a smart option. Keep in mind, though, that leases are usually more expensive than loans in the long run, especially since you’ll have to pay more if you want to buy the vehicle when the lease expires.Here’s a look at key differences between buying vs. leasing equipment for your business:

	Buying	Leasing
Monthly Payments	• Higher	• Lower
Commitment	• Long-term	• Short-term
Maintenance	• Owner covers cost of maintenance and repairs	• Included in monthly payments along with minimal wear and tear
Modifications allowed?	• Yes	• No
Long-term cost	• Generally, lower	• Generally, higher

Lenders That Offer Small Business Loans

Here are lenders in our marketplace that offer fast funding for your business:

Biz2Credit

You can apply for Biz2Credit funding solutions, including business term loans of up to $500K. Repayment terms range from 12 to 36 months on these term loans, which you can use for general business purposes.

Fundera

You can apply for business term loans and other funding solutions through Fundera, a small business loan aggregator. Businesses can use term loans for a variety of purposes.

iBusiness Funding

You can apply for iBusiness Funding business term loans ranging from $25,000 to $500K. Terms range from six months to seven years, and you can use the funds to buy commercial vehicles, among other business purposes.

Lendio

You can apply for Lendio terms loans, SBA loans, equipment financing, and other funding solutions. You may request up to $5 million in equipment financing that can help you buy commercial vehicles for your business.

OnDeck

You can apply for OnDeck term loans of up to $250K and business lines of credit of up to $100K. Repayment terms range from three to 24 months on the term loans, while the line of credit has a 12-month term. You can use the funds for general business purposes.

Seek Business Capital

You can apply for a Seek Business Capital line of credit ranging from $10,000 to $250K. Funding may be available for startups and early stage business owners.

Is Refinancing Commercial Auto Loans Possible?

You may be able to refinance a business auto loan and potentially get a lower APR and/or reduce your monthly payment. Generally, a good time to refinance an auto loan is when your business or personal credit has improved, you’ve paid a substantial portion of your loan off, or interest rates have gone down.Keep in mind, however, that extending the term of your auto loan can result in higher overall costs, and some banks have restrictions on mileage and vehicle age.

The Takeaway

Business auto loans typically come with built-in collateral — the vehicle itself. As a result, they may cost less or be easier to qualify for than other loans, and depending on the lender, you may not have to provide a personal guarantee to secure the debt.Getting a business auto loan could help you acquire the vehicles you need to run your business, and free up cash for other business activities. You can refinance auto loan debt for lower monthly payments.

Frequently Asked Questions

Do business auto loans show up on personal credit reports?

What does your business credit score need to be to get a business auto loan?

Do all banks offer commercial vehicle finance?

Can a business take over a car loan?

Can you use your EIN number to buy a car?

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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