Commercial auto loans
While some businesses like taxi rentals require a large number of cars, others will require fewer vehicles. They can get financing from different sources like banks, finance companies, credit unions, and alternative lenders. The procedure for applying for a loan for a business vehicle is similar to that of a car loan, but more documentation will be required. Both used and new vehicles can be purchased with these loans, and existing loans can also be refinanced. Although business owners may also use the vehicle for personal use, only business-related expenses should be used for tax purposes.
Comparing loans
There are many lenders offering auto loans, so business owners should compare the terms before applying for a loan. The business should be aware that the terms of the loan like the down payment, repayment term and interest rates will depend, to a large extent, on the credit rating of the business. Often lenders will offer 100% of the car value for a new car, but may not finance cars which are more than 5 years old. This is because the value of the car will depreciate rapidly, making them an expensive purchase. Therefore, many businesses choose to lease cars, although a business will often then purchase it if it requires a car for the long term. Additionally, the car depreciation will equate to a deduction in the tax returns.
Prepare the documents
Business owners should be aware that applying for a car loan is a time-consuming process, and the lender will approve the loan only if they are certain that the business is capable of repaying the loan. The business owner should decide on the features required in the car, and check the available car models and makes to choose a specific model. They should also check their cash reserves, since they may have to make higher down payments if the vehicle is very expensive or older. Some of the loan documents required are proof of business ownership, and personal finance records, such as credit score, history, and statements. It is advisable to prepare a loan proposal with details of the business, why it requires a loan, and financial statements. For refinancing a vehicle, the lender will check both the vehicle details and the business’ financial records. It is advisable to research the different lenders to get the best deal before choosing a specific lender. Businesses with bad credit, usually have to pay higher interest rates, and a personal guarantee may be required. Business-related vehicle expenses count as tax deductions, so many businesses prefer to take a loan and purchase a new or used car. Assess your business’ finances before deciding which option is best for you.
