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Business Auto Loans: Reviewing Your Top 6 Options

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Business Auto Loans: What You Need to Know

A business auto loan is a specific form of equipment financing that allows you to access low-cost capital to invest in cars or trucks, which will function as collateral for the business auto loan itself. This self-collateralizing setup makes business auto loans without personal guarantee requirements that much easier to find.

If you need to access an automobile for your business—whether a car for traveling, a truck for lugging, or a bus for touring—a business auto loan is a top choice for subsidizing this investment. In fact, small business loans for automobiles come with some of the most affordable interest rates and longest repayment terms on the market.

We’ll comb through all the details on small business auto loans to help you decide whether they are the right move for your business, starting with the top business auto lenders:

  1. Wells Fargo
  2. Balboa Capital
  3. Currency Capital
  4. Crest Capital
  5. Funding Circle
  6. Direct Capital
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Business Auto Loans: Your Top 6 Options

If you’re thinking that a business auto loan is exactly what you need to rev up your small business’s growth, then you’ll have to find the right small business auto loan lender for your needs and credentials.

Let’s take a look at the top six lenders to consider during your search for an auto loan for your business.

1. Wells Fargo

Your first option when it comes to equipment financing should always be a bank, and one bank that offers a great equipment financing product is Wells Fargo. With Wells Fargo equipment financing, you can secure a loan of up to $100,000 on a two- to six-year term with interest rates starting at 7%.

To qualify, you’ll need one year of business history, a minimum credit score of 600, and $100,000 in annual business revenue. Because this is a bank loan, it may take longer to acquire financing than some of the other lenders we are going to talk about.

2. Balboa Capital

Balboa Capital offers business auto loans ranging from $3,000 to $1 million with business auto loan factor rates as low as 1.1 and repayment terms as long as five years. To be eligible for a business auto loan from Balboa Capital, you’ll need personal credit of 600+, at least a year in business, and at least $300,000 in annual revenue.

If you’re looking for affordable small business auto loans, then Balboa Capital could be your very best bet.

3. Currency Capital

If you’re looking for small business auto loans that come in larger amounts, then consider Currency Capital as a top option. Currency provides business auto loans ranging in size from $5,000 all the way up to $2 million.

Currency Capital business auto loan interest rates can dip as low as 6%, and repayment terms can stretch as long as seven years. If Currency Capital’s larger, longer-term business auto loans sound right for you, you’ll need to have a personal credit score of at least 620 and at least $120,000 in annual revenue to be eligible.

4. Crest Capital

Next up on our list of business auto loan providers is Crest Capital. This lender has one of the best reputations in the industry and offers business auto loans ranging from $5,000 to $500,000. Crest Capital auto financing will come with terms no shorter than two years and as long as seven years, with business auto loan interest rates as low as 5%.

You’ll simply need personal credit of at least 650 and at least two years in business to be eligible for this business auto loan lender, but if you check off those boxes, Crest Capital could offer up your best business auto loan deal.

5. Funding Circle

Funding Circle is an international leader within the small business lending market, and their equipment financing product is not to be overlooked. Through Funding Circle, you can secure equipment financing loan amounts between $25,000 and $500,000 with repayment terms up to five years and interest rates starting at 4.99%.

Most businesses that qualify for Funding Circle equipment financing have a credit score of at least 620 and at least two years of business history. Because Funding Circle is an online lender, they can often approve your application in as little as 24 hours.

6. Direct Capital

Direct Capital is another online lender that offers a host of financing options, including equipment financing. If you go with Direct Capital, you can qualify for a small equipment financing loan of up to $500,000 on repayment terms ranging from one to six years.

Business qualifications for Direct Capital equipment financing are minimal: just a 620 credit score makes you eligible. This makes Direct Capital one of the most attainable equipment financing products around. Similar to Funding Circle, you can receive funding from this online lender in as little as a day.

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The Basics of Business Auto Loans

You have a list of the best lenders offering loans for business vehicles, but let’s nail down some of the fundamentals of understanding how this form of equipment financing works.

Here are the basics of small business auto loans and what taking one on would look like for your business.

Interest Rates

As with most forms of equipment financing, with business auto loans, you’ll be able to access some pretty stellar interest rates, because the vehicle itself will act as collateral for the funding. Business auto loan interest rates can dip as low as 3.89% if you’re accessing funding through a bank. However, if you decide to go with a non-bank lender for their quick and accessible business auto loans, then interest rates will start at 8%.

Loan Amounts

Through business auto loans, you can access up to 100% of the value of the automobile you hope to purchase with the proceeds. Business auto loan lenders will typically put a dollar amount cap on their loans, but this will fluctuate based on which lender you choose to work with.

Repayment Terms

With almost any small business auto loan you come across, you’ll be repaying your business auto financing with monthly scheduled payments. And small business lenders will schedule out a repayment plan that will have you paying these monthly sums throughout the projected life of the automobile you purchase with the loan proceeds.

Provided that your automobile collateral is still worth something, your lender won’t be too worried about getting their money back quickly. If your collateral is still worth something, your lender is working with very little risk. As a result, the repayment term lengths for business auto loans are petty ideal, and they often stretch as long as six years.

Loan Requirements

Finally, because business auto loans are a form of secured funding, they’ll have more manageable requirements than their unsecured alternatives. Based on the customers we fund with business equipment financing, you’ll be in the running for a business auto loan if you have a FICO score of 630+, at least two years in business, and at least $130,000 of annual revenue.

Plus, because the automobile itself will be securing the business auto loan you take on, finding a business auto loan with no personal guarantee requirement will be pretty simple. Most lenders ask for a personal guarantee in place of collateral, so many business auto loan lenders won’t necessarily require that you provide a personal guarantee for your debt with them.

Business Auto Loans vs. Business Auto Leasing

You might be considering leasing an automobile for your business instead of financing a purchase with a business auto loan. Both will have their respective merits, but be sure to note that you won’t ever own the car or truck if you’re leasing it.

As a result, you won’t be able to consider any auto you lease an asset when calculating your business’s worth. Meanwhile, a business auto loan will allow you to own your car or truck, while also paying it down gradually.

However, at the end of the lease, the business owner does have the option to pay off the balance and own the vehicle or enter into a lease for another vehicle. This might make more sense if you can’t qualify for a business auto loan, or if you don’t want to be stuck with equipment that will soon be outdated.

When to Get a Business Auto Loan

If you want to keep the vehicle for an extended period of time, a business auto loan is a good option. With an auto loan, you can rack up a bunch of mileage, and don’t have to worry as much about wear and tear on the car.

When to Get a Business Auto Lease

An auto lease is a good option if you want to upgrade every few years to a newer model, or if you don’t plan on racking up a large amount of miles. However, leases are usually more expensive than loans, but you do have the option of buying the vehicle outright when the lease expires.

Advantages of Small Business Auto Loans

Having taken a look at your top options for small business auto loan lenders, let’s now consider the most notable features of small business auto loans. First, we’ll start with the positive and focus on the most notable advantages of taking on an auto loan to grow your small business.

Lengthy Repayment Terms

With business auto loans, you’ll be able to qualify for longer repayment terms than you would normally be able to qualify for. Because the collateral that’s built into business auto loans makes this form of funding less risky for lenders, they’re willing to give you more time to pay down your debt gradually. Longer repayment terms mean that your monthly scheduled payments will be less condensed and, as a result, much easier to afford.

Lower Interest Rates

For similar reasons, small business auto loans will come with lower interest rates than your business would normally be able to qualify for. The automobile or automobiles that secure business auto loans make it more likely for the lender to recoup the value of your debt, even if you default on your loan. As a result of this mitigated risk, lenders are willing to charge you less interest than they would for unsecured business funding.

Built-in Collateral

The final, most notable advantage to small business auto loans is the reason for the other two—business auto loans have longer repayment terms and lower interest rates thanks to their self-secured nature. Business auto loans have collateral built into their model, so you or your business won’t have to provide outside collateral to access better rates. The only thing needed to provide to secure your loan is the automobile that you purchase with the loan proceeds, no real estate or personal assets necessary.

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Disadvantages of Small Business Auto Loans

For all of their virtues, business auto loans can come with a few notable downsides. Be sure to keep these following two downsides in mind before you move forward with taking on a business auto loan.

Potentially Obsolete Automobiles

Because small business auto loan providers typically base their repayment terms on the projected life of an automobile, you’ll likely end up with a piece of obsolete machinery once you’re done paying down your business auto loan. Lenders aim to make sure that you’ve paid off your debt to them while the automobile in question retains any worth. So, when you square off your business auto loan, you might find yourself stuck with a big hunk of outdated metal.

If you’re worried about ending up stuck with an obsolete automobile, consider leasing instead of financing a full-on purchase.

Still Tough to Qualify For

Additionally, even though business auto loans will be slightly easier to qualify for because their self-secured nature mitigates some of the risk, they are still pretty tough to qualify for.

Most business auto loan lenders will require at least a year of business history to be eligible to fund with them. Plus, you’ll often need solid personal credit to be eligible to access a business auto loan. If you’re running a new business, you’re working with average personal credit, or both, then business auto loans might not be an option for your business.

Frequently Asked Questions

Can I get a business auto loan if I have bad credit?

Yes, but you may face higher loan rates. Since business auto loans are self-collateralizing, the lender still has a good chance of getting their money back. Nonetheless, businesses with low credit scores are still considered riskier to lend to, and will be treated accordingly.

Can I get a business auto loan without signing a personal guarantee?

The fact that equipment financing is self-securing also helps borrowers get financing without having to sign a personal guarantee. However, not all lenders will offer you this type of loan. It helps to be a highly qualified borrower in order to get a business auto loan with no personal guarantee.

Can I get a business auto loan without making a down payment?

This is another area where highly qualified borrowers will have a leg up. However, if you don’t make a down payment you should expect your monthly payments to be higher.

Can I use business auto loans to purchase a commercial truck?

Business auto loans can be used for commercial truck financing, although you will likely need a larger amount of money to afford this type of vehicle.

What happens if I default on my business auto loan payments?

If you default on your business auto loan payments and you didn’t sign a personal guarantee, the lender can repossess your vehicle. If you signed a personal guarantee, the lender can seize your personal assets to recoup their loss.

The Bottom Line

If you’re interested in seeking capital for purchasing an automobile—be it a car, truck, bus, or RV—for your business, then you should seriously consider making business auto loans work for you. They won’t require outside collateral, and they come with some of the most ideal terms of any business loans on the market.

However, if you’re not determined to own the automobile you need for your business, then take a moment to consider leasing as an alternative—the repayment term lengths for business auto loans are lengthy, your monthly payments will be affordable, but you might end up with an obsolete fleet by the time you’ve paid down your debt.