App version: 0.1.0

Guide to Buying a Vehicle for a Small Business

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 Guillory
Susan GuilloryUpdated July 20, 2021
Share this article:
Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
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.Because business auto loans use the vehicle itself as collateral, 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 Commercial Auto Loan?

A commercial or 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 a personal auto loan, commercial auto loans are considered secured because the vehicle you’re purchasing acts 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 way to personal auto loans: You get the amount you need to purchase the vehicle up front, 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.

Business Auto Loan Amounts

The amount of money you can get with a business or commercial 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 auto loan loans are often structured like other types of business term loans. You receive the entire principal up front 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 commercial 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 up front 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 will likely need to see 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 five 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 (online business 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. Also look at 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 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 annual percentage rate (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 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 600, 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

Business auto loans and personal auto loans have a similar structure as far as terms and fees. However, there are a few key differences between these two loan types.For one, a personal auto loan offer is solely based on your personal credit history. With a commercial auto loan, on the other hand, a lender will factor in your business credit score, time in business, and business revenue when considering whether or not to give you the loan and for how much. 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. 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.Generally, if your business is fairly well established and needs a vehicle, you will likely benefit from financing that vehicle through a commercial auto loan. If your business is new or small but your personal credit is strong, you might be better off getting a consumer car loan. 

Business Auto Loans vs Equipment Financing

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.Equipment loans 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. The average loan term is three to seven years, but will depend on the useful life of the equipment.Like a commercial auto loan, the purchased vehicle then becomes collateral for the loan itself. Should you become unable to make your loan payments, the lender can seize the vehicle. Due to this arrangement, you may be able to get equipment financing without a personal guarantee.

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 each approach. Since lease payments don't have interest, they usually cost less than auto loan payments. 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 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, especially since you’ll have to pay more if you want to buy the vehicle when the lease expires.Here’s a look at how buying vs leasing compare.
BuyingLeasing
Monthly PaymentsHigher Lower 
Commitment Long-termShort-term 
Mileage limitations Penalties for higher mileage than leasing termsNo mileage limits or penalties 
Maintenance Owner covers cost of maintenance and repairsIncluded in monthly payments along with minimal wear and tear
Modifications allowed?YesNo
Long-term costGenerally, lowerGenerally, higher

Banks That Offer Small Business Auto Loans

There are a number of banks that offer auto loans for businesses. Here are five that rank highest in internet search results for “small business auto loans” as of August 2022. 

Bank of America

Bank of America offers a variety of financial products for business, including loans for business vehicles (such as cars, vans, and light trucks) and auto loan refinancing. Loan amounts start at $10,000 and terms range from 48 to 72 months. A Bank of America business auto loan can be a good option if you are still shopping for the right vehicle – they will lock in your business auto loan rate offer for 30 days. 

Ally

Ally offers several business auto loans options, including loans for heavy-duty trucks and vehicle modifications (such as adding towing equipment). In addition, they offer leasing for passenger cars. Leases can be open- or closed-ended, which gives you some flexibility with how you pay for your lease.

Capital One

Capital One offers both commercial vehicle loans of $10,000 and terms of up to five years. They also offer auto refinancing. To qualify for a commercial auto loan with  Capital one, your business needs to have been in operation at least two years, and you must have or open a business checking account with Capital One.

PNC

PNC’s small business auto loans offer up to $250,000 in financing and will cover up to 100% of costs, meaning there typically is a low or no down payment. Terms range from two to seven years. Ally also offers equipment financing for up to $3 million in purchases, making this bank worth considering if you need a large amount of financing. 

Wells Fargo

Wells Fargo offers a range of commercial equipment financing options, including loans for trucks, semi-trailers, specialty vehicles, buses, and motorcoaches, as well as leasing options. Terms vary depending on the loan type, but the bank generally offers terms of one to seven years and up to 100% financing for the purchase of new or used vehicles. To qualify, you may need at least two years in business, strong annual revenue, and a good credit score.

Other Lenders that Offer Business Auto Loans

You can also find business auto loans from alternative (or nonbank) lenders. These lenders may charge more, but their vehicle loans can be easier to qualify for and faster to fund.

Crest Capital

Crest capital is an online lender that offers large business auto loans (up to $1 million), with minimal restrictions on a vehicle’s mileage or age. Loan terms range from two to seven years. To qualify for a business auto loan from Crest Capital, you generally need to have a solid credit history, be profitable, and have some time in business.

National Funding

National funding offers commercial vehicle financing or leasing for cars, delivery vans, commercial trucks, trailers, fleet vehicles. The lender offers loan amounts up to $150,000 for new or preowned vehicles, and does not require a downpayment. They also also have relatively flexible qualification requirements, making them a potential option for startups and business owners with bad credit.

Balboa Capital

Balboa capital specializes in equipment financing and offers commercial truck loans of up to $500,000 for vans, flatbeds, and other vehicles. To qualify, you generally need one year in business and at least $100,000 in annual revenue. As with many other alternative lenders, Balboa Capital offers a quick online-based application process with same-day funding.

Currency Finance

Currency Finance offers business auto loans ranging in size from $5,000 up to $500,000 with terms up to six years. For loans under $150,000, they offer a fast online application process with funding in as little as 24 hours. Larger business auto loans require more documentation and can be slower to fund, but the process will still likely be faster and easier than working with a bank. To qualify for a business auto loan from Currency, you’ll need at least two years in business and $120,000 in annual revenue.

CIT

CIT (formerly Direct Capital) offers a range of business vehicle and equipment financing and leasing options. Repayment terms range from six months to six years. Their business auto loans go up to $500,000 and can fund as fast as one day. The lender doesn’t state qualification requirements on its website.

Is Refinancing Commercial Auto Loans Possible?

Yes. 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. 

Small Business Auto Loan Alternatives

A business auto loan isn’t the only way to finance a vehicle purchase for your business. The proceeds from a traditional bank term loan, a Small Business Administration (SBA) loan, or a business line of credit can typically be used for any  business purpose, including the purchase of a company car. If you aren’t able to qualify for a business auto loan, or the vehicle will be driven for both personal and business use, you might also consider getting a consumer auto loan. Because the loan will be in your name (not your company’s), it won’t help you build business credit. However, this type of auto loan can be easy to qualify for even if you have fair personal credit.

The Takeaway

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.Business and commercial auto loans 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.You can use other small business loans to finance a vehicle, so it can be a good idea to shop around and compare your options. With Lantern by SoFi’s online lending marketplace, you can compare rates without scouring the web and checking multiple sites. With one short application, you’ll be matched with loan offers that meet your company’s needs and qualifications.Let Lantern connect you with the right lender for your business financing needs.

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?
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
LCSB0622019

About the Author

Susan Guillory

Susan Guillory

Susan Guillory is the president of Egg Marketing, a content marketing firm based in San Diego. She’s written several business books, and has been published on sites including Forbes, AllBusiness, and Cision. She enjoys writing about business and personal credit, financial strategies, loans, and credit cards. Follow her on Twitter @eggmarketing.
Share this article: