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Should You Get a Business Auto Loan When Business is Slow?

Running your own business requires a lot of money and a lot of time spent planning and preparing. Running a business comes with expenses you may not even consider, such as renting office space, purchasing software, and even paying a cleaning service. These expenses can pile up much more quickly than you thought and leave you wondering where you might need to start cutting corners.

Small business owners often have a little issue with retaining the capital required to purchase vehicles that they need to run their business. If you find yourself in this situation, then you may wonder what you can do to purchase the vehicle that you need for your business. There are business auto loans that are an option for business owners who are looking to purchase from a dealership or even from an individual.

Commercial auto loans, such as this option from, work very similar to loans for a personal vehicle. The lender will technically own the car for the duration of the loan. The business owner makes monthly payments on the loan until the loan is paid off. Once the loan is paid off, the business owner will get the title of the vehicle.

Requirements for Commercial Auto Loans

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Each lender for a commercial auto loan will be different from the other. In general, you will need to provide the lender with all of the documentation that goes with your business. This includes any licenses associated with your business and the official documentation of the articles of incorporation to prove that you own the business.

You also want to have documentation that shows your Federal Employer Identification Number so that the business can lend you the money. You could use your social security number if you are the only individual associated with owning the business.

Just like with a personal loan for a vehicle, you will have to make payments on the loan. So, you need documentation of the money that you will use to pay the loan back. This could be a bank statement or documentation of your monthly cash flow.

The lender will also consider both your credit score as well as your business credit score if you have one. It would be best if you, too, were prepared for the lender to give you some requirements regarding the age and mileage that is one the vehicle you purchase for business use. Of course, this is only if you purchase a pre-owned vehicle.

Interest Rate and Terms

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We have already mentioned that commercial auto loans are extremely similar to personal auto loans. Currently, the most highly qualified borrowers are getting about a 5% interest rate. However, if your credit is less than stellar, you might get an interest rate of as high as 18%.

If you have a down payment, you can do a little bit of negotiation. Further, you can refinance your car later if you can improve your credit score or establish business credit over time. Refinancing is a great option that can save you money in the long run.

Most commercial auto loans expect a down payment of at least 10% of the amount financed. The terms are usually built on 60 months or five years in most of the average commercial auto loans.

You may also want to consider that trucks might have different terms than other types of commercial vehicle loans. Heavy-duty trucks, for instance, usually require a higher down payment than a commercial car. However, they may also require up to 25% of the total financed as a down payment for a large truck.

Where do I get a commercial Auto Loan?

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Just like a personal auto loan, there are a variety of lenders who can finance a commercial auto loan. Just like in the natural world of finance, there are also reputable lenders and some sketchy lenders offering to lend money to small businesses for the purchase of a commercial vehicle.

Small Business Administration

The Small Business Administration (SBA) offers extremely competitive loans to purchase a small business vehicle. In general, you can get high rates and terms through the SBA, but you will need to be a qualified borrower to be accepted to do business with them in most cases.

Banks and Credit Unions

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While certainly the most traditional of all of the lending options, banks and credit unions are an excellent choice for obtaining a commercial auto loan. If you borrow money from the bank you choose to do your small business banking, and you might find that you have a favorable position with them.

You might also consider credit unions in your search for a commercial auto loan. Credit Unions are often able to offer lower interest rates and have more flexible borrowing requirements than traditional banks. Sometimes, credit unions can offer a lower down payment because they do not have the strict borrowing requirements that traditional banks have.

Other Lenders

You can also find plenty of lenders online that offer reasonable rates and terms for a commercial auto loan. Just be sure that you do your research and read the fine print to avoid any undesirable terms in the paperwork surrounding your loan.

Final Thoughts

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As mentioned before, running a business is tough work. Many decisions need to be made, and many small businesses wind up failing because the business owner does not make wise choices. We hope that you will find out how to make an informed decision regarding your need to purchase a commercial vehicle through the information you provide.

Overall, only you know the financial ramifications of taking on debt to run your business. You are going to have to spend money if you want to make money, but there is a balance between rational spending and too much debt.

About Marta Sebos