Financing a Vehicle for Your Business
Published October 16, 2014 | Updated October 31, 2014
When you own a business and you need to purchase an auto, you have a couple of different options. You can purchase the auto with funds from your business or you can finance it.
Consider the choice carefully. If you have the capital to absorb the cost of the auto without significantly affecting your finances, that can be a good option to avoid interest charges and a monthly payment.
If your business has a line of credit with a financial institution then you could use it to purchase the vehicle. Hopefully you have secured a good interest rate if that is the route you choose.
Interest rates for auto loans are typically lower than unsecured or revolving credit, so you may want to instead consider financing an auto loan under your business name. Depending on the amount, you may be able to be approved based on your personal credit rating. If that is possible then the process mirrors a normal auto loan application.
Many financial institutions have a business lending department for such requests. It can be a way to strengthen your relationship with an existing institution. It can also be a way of establishing a relationship.
So what is the financial institution going to look at when they review this type or loan application? That really depends on their internal guidelines, but here are some items that will likely come into play:
Income or Cash Flow of the Business
This is normally expressed through the tax returns that your business has filed. It is important that you are reporting your true income on the tax returns because most institutions will only use what can be verified through the tax returns, and in many scenarios they will require two or more years of filed returns.
Value of the Auto vs. Amount You Request
This is often referred to as the Loan-To-Value ratio or LTV. When reviewing the request it is not unusual for an approval to be limited to 100% or less of the value of the auto. The reason for this is because the vehicle will likely experience more wear and tear than a standard consumer auto. Likewise it may have after-market add-ons which are necessary for the business but also significantly impact the value of that auto moving forward.
Your Relationship with the Financial Institution
While this certainly has less impact than the first two, it may be an important deciding factor if the request is marginal. If the business has an active account with the financial institution then they likely will be able to understand on a much deeper level the profitability and cash flow of the business. This can be a great advantage to you when submitting a business auto request.
Type of Vehicle You're Looking to Purchase
Amplify can finance up to 80% of the value of the vehicle if it is truly a commercial-purpose vehicle, such as a bus, cargo van, or semi-truck. If the vehicle is purchased at a normal car dealership and is a consumer-purpose vehicle (purchased under the business name), Amplify can finance up to 100% of the value. Every institution is different, so check with your lender.
It is a good idea to contact your tax accountant to determine the advantages/disadvantages to titling the auto under the business name. This is an important purchase, and you will be helping yourself tremendously by doing the appropriate amount of research so that you can make a sound decision for your business needs.