Business Auto Loans Without a Personal Guarantee
Purchasing a vehicle for your business can be expensive. But if you’re a small business owner who needs financing to buy a commercial vehicle, it may be wise to take out a loan in your company’s name rather than a personal loan tied to your consumer credit reports.
How to Get a Business Auto Loan
The five steps below can show you how to get a commercial vehicle loan for your business.
Step 1: Credit Review
A lender will likely review your credit history and credit score when you apply for financing. Whether you want a business credit card, small business administration (SBA) loan, business line of credit, commercial auto loan, or something else, a credit check is likely to happen.
It’s wise to check the condition of your credit yourself before filling out any loan applications.
With a business car loan, a lender may want to look over both your personal and business credit. So you may want to do the same.
You can review credit reports from the major consumer and business credit bureaus (along with credit scores) to know where you stand. Good credit scores can work in your favor when you’re trying to buy or lease a vehicle.
How to Access Your Credit Reports and Scores
You can get a free consumer credit report from Equifax, TransUnion, and Experian once every 12 months. Visit AnnualCreditReport.com to claim these reports.
Personal credit scores may require a separate purchase. But you may be able to access free credit scores elsewhere, such as through your credit card company, Credit Strong, or another resource.
For business credit reports and scores, consider visiting the business credit bureaus (Dun & Bradstreet, Experian, and Equifax). Credit Strong for Business customers have monthly access to the Equifax Business Delinquency Financial Score grade.
Step 2: Set a Budget
The next step in the business car-buying process is setting a budget. As a business owner, it’s important to know how much you want to spend overall and how much you can afford to pay each month toward a business auto loan or lease payment.
Use an online auto loan calculator to calculate monthly payments and total interest costs on business auto loans. myFICO’s free Loan Savings Calculator shows the potential savings if you improve your credit score and qualify for an auto loan with a lower interest rate.
Step 3: Choose a Lender
After you have a budget in mind for your company’s vehicle purchase, it’s time to search for a lender. In the current auto market with lower-than-average inventory due to chip shortages, having your financing in order before you start looking for vehicles could be wise.
However you may want to know the type of vehicle you want in advance (e.g., under 2.5 tons, over 2.5 tons, new, used, etc.). These details could influence your financing options.
Look for lenders that are willing to accept applicants with your credit profile too. For example, if you have fair credit you don’t want to apply for a vehicle loan that requires good or excellent credit to qualify.
Is your goal to get a business loan without a personal guarantee? If so, search for lenders that give qualified borrowers this opportunity.
Be sure to compare loan offers from multiple lenders. Shopping around for the best interest rates and fees could save your company hundreds or even thousands of dollars over the course of a vehicle loan.
Once you settle on your preferred lender, see if there’s a prequalification process available. If so, you might be able to check your loan eligibility and estimated interest rate—perhaps with a soft credit inquiry that won’t damage your credit score.
Step 4: Shop for a Vehicle
There are many details to consider when you’re searching for the right vehicle for your business needs. Some factors you may want to consider include:
Price
Condition (New, Used, Low-Mileage, etc.)
Gas Mileage
Expected Maintenance Costs
Insurance Costs
Consider looking over the Internal Revenue Service’s rules on the “Business Use of a Car” as well. This information can help you make sure you choose the right type of vehicle if you hope to write off expenses as a tax deduction.
Step 5: Official Loan Application
The final step in getting a business auto loan is filling out the official application. Be prepared for a review of your credit report and score (perhaps both personal credit and business credit).
You may also need to provide certain documents along with your business auto loan application including:
Tax Returns (Business and Personal)
Business Bank Statements (Business and Personal)
Financial Reports (Profit and Loss, Cashflow, etc.)
Business Plan
Etc.
If the lender approves your application, it’s important to review your financing offer carefully. Be sure you’re comfortable with the interest rate and terms in the offer.
You should also make note of any personal guarantee requirements (or lack thereof). And keep an eye out for business or personal asset pledge requirements (to secure the loan) and potential red flags.
How Can You Get a Business Auto Loan Without a Personal Guarantee?
Good credit can benefit you when you’re seeking auto financing. And if you want to get a business auto loan without a personal guarantee, having good business credit matters even more.
Other factors might help your business get an auto loan without a personal guarantee as well including:
Good Cash Flow
Cash Reserves
Sufficient Time in Business
Any details that reduce your credit risk in the eyes of a lender could be helpful.
Why and When Do Lenders Require a Personal Guarantee?
With a personal guarantee, you promise to repay the debt in the event your business fails to do so as promised. Therefore, a personal guarantee can help a lender reduce the risk of loaning money to a business and incurring a loss.
If your business tries to buy or lease a car with bad credit, a lender is more likely to ask for a personal guarantee. But there are other ways a lender might seek to reduce its risk exposure too, such as:
Charging higher interest rates.
Adding loan fees.
Approving a borrower for a lower loan amount.
Offering shorter repayment terms.
Alternatives to Business Auto Loans
If you need to improve or even establish business credit from scratch, you might want to consider the following alternatives to business auto loans.
Equipment Loans
Equipment loans are a type of business financing companies can use to buy different types of equipment. Depending on the type of vehicle you need for your business, you might be able to make the purchase with this type of financing.
In general, the equipment you finance will serve as collateral to secure the loan. However, a lender might require a down payment (perhaps 10% to 20%) in some scenarios.
You may be able to get an equipment loan in a couple of different ways such as:
A Traditional Financial Institution (aka a Bank or Credit Union)
An Online Lender
Online lenders may have more lenient approval requirements. But if the lender is accepting more risk by accepting borrowers with lower credit scores, less time in business, etc., you might pay more for the financing in exchange.
Term Loans
A term loan is a versatile financing solution that you can use for a variety of different business expenses. Some lenders might even let your business use a term loan to finance the purchase of a vehicle.
This type of small business loan can come in two varieties—secured and unsecured business loans. It’s also not unusual to find a small business loan with repayment terms that span five years or more, but each lender will set its own terms. Maximum loan amounts may vary.
As with other types of financing, it might be easier to qualify for a term loan from an online lender. But if you can secure a bank loan or an SBA loan, you may be able to lock in more affordable interest rates and fees.
Bottom Line
Business auto loans can help businesses finance the vehicles they need to operate successfully. As an added perk, a well-managed car loan has the potential to help you build credit too.
Of course, finding a lender that’s willing to issue you a loan without a personal guarantee can be a challenge. If you hope to get a business auto loan without a personal guarantee in the future, your best bet is to work on building good business credit.
A strong business credit score won’t guarantee that you can qualify for a loan with no personal guarantee. However, earning good business credit could put you in a better position to reach your financing goals.
The post Business Auto Loans Without a Personal Guarantee appeared first on Credit Strong.
Welcome to Billionaire Club Co LLC, your gateway to a brand-new social media experience! Sign up today and dive into over 10,000 fresh daily articles and videos curated just for your enjoyment. Enjoy the ad free experience, unlimited content interactions, and get that coveted blue check verification—all for just $1 a month!
Account Frozen
Your account is frozen. You can still view content but cannot interact with it.
Please go to your settings to update your account status.
Open Profile Settings