A business auto loan (also known as a commercial loan) allows you to access low-cost capital to purchase a vehicle for your company. This type of financing is called equipment financing. The car is used as collateral and a business owner can obtain a loan to finance a vehicle without having to provide personal guarantees.
These loans can be compared to personal or consumer loans. Although the terms and interest rates will vary according to the lender, most business loans are affordable. A Working capital loan can be used to finance the day-today operations of a company, including payment of wages and accounts payable.
Paycheck Protection Program
This popular program allows small businesses to get loans. These loans can be forgiven if the loan amount is used in accordance with its terms. They are therefore very attractive for those who meet the requirements.
The following criteria must be met in order to get one:
- You must show a 25% decrease in annual gross receipts
- The business must have been operational before February 15, 2020
- The company can’t have more than 300 employees
- The business cannot be traded publicly or used in political advocacy
If all criteria are met, you can get this loan to replace your vehicle.
Small Business Equipment Loans
This loan allows a small business owner to purchase a vehicle without requiring personal guarantees. The vehicle serves as collateral for the loan. A down payment of 20% must be made on the purchase price. The loan amount may be up to $500,000 and is typically structured over a 2-to 4-year period. These loans can also be structured as equipment leasing.
Bank Loans
Bank loans may be the best option to obtain a loan for your business. These loans can provide up to 100% of the vehicle’s purchase cost, provide a flexible repayment schedule, and offer competitive interest rates. What are the downsides? It might take some time for funding to move through.
To be eligible, you must have a high annual income and a good credit score.
Alternative Lenders
Private institutions are able to process your auto loan for business faster than banks. Many alternative lenders offer the convenience of online applications and same-day funding. This can be done through an equipment financing program. It can be used to finance new or used vehicles as well as other business-related equipment. Although the requirements for qualifying are lower than those for a bank loan, there will still need to be a good FICO score and a steady stream of income.
These loans are more expensive than bank loans and have a shorter term. Given the number of options, how can you decide which one is best for you? Lantern by SoFi makes it easy and quick to calculate auto loans refinance rates. This allows you to make an informed decision about your auto loan for business.
