What Is a Business Auto Loan?
If you’re unfamiliar with the concept of a business auto loan, it’s essentially a financial arrangement in which bank or other lender provides a business owner with the funds they need to purchase a vehicle for company use. Business auto loan interest rates are generally lower than they are with traditional loans because the vehicle serves as a form of collateral. Regardless, getting approved for one of these loans often boils down to the quality of an applicant’s individual credit history.
What Is a Business Auto Loan Without Personal Guarantee?
Some business auto loans require what is known as a personal guarantee. Essentially, this a written promise from a business owner (or company executive) that guarantees repayment of an unsecured loan. Applicants with high credit scores, however, are more likely to get approved for business auto loans without personal guarantees, but some lenders require these guarantees no matter what.
How Much Can You Borrow with a Business Auto Loan?
Auto loans for business owners come in a variety of amounts, ranging from a few thousand dollars to a few hundred thousand dollars. Yet if you’re like most small business owners, you’ll probably need less than $50,000 to fund a new vehicle. Most lenders in this space are able to accommodate such needs.
What Are Business Auto Loan Repayment Terms?
Different lenders have different terms when it comes to repaying auto loans. Some institutions charge higher interest rates than others, while other lenders give you more time to pay back the amount. Generally, however, when it comes to the length of time borrowers have to repay an auto loan, the typical span is 2 to 5 years. And when it comes to interest rates, APRs can be as low as 3% or 4%, but most lenders charge closer to 8% or more.
What Is Required to Get a Business Auto Loan?
In order to get approved for small business auto loans, entrepreneurs must satisfy a set of criteria outlined by a lender. Typically, this is based on an applicant’s credit score, but other factors may also play a role. For instance, if your credit score isn’t very high — but you have a substantial amount of money to apply as a downpayment — that could make it much easier to secure an auto loan. Additionally, some lenders require borrowers to earn a predetermined level of income in order to get approved for an auto loan, but this amount can vary substantially based on the lender.
Where to Get a Business Auto Loan
Business auto loans can be secured from a variety of sources, including banks, credit unions, and online lenders. Here’s a look at two popular lenders and how they stack up against one another.
OnDeck
Since 2007, OnDeck has been a leading online lender that provides funding to small businesses. More recently, the OnDeck began partnering with traditional brick-and-mortar banks to deliver term loans and lines of credit to entrepreneurs and other business owners. It’s also important to note that, rather than basing lending decisions solely on a borrower’s credit score, OnDeck evaluates a business’s overall performance.
Pros
- After an applicant is approved for an auto loan, OnDeck delivers funds promptly.
- Borrowers only need a decent — not exceptional — credit score to qualify for a loan.
- Individuals who have used OnDeck in the past will have an easier time getting approved.
Cons
- OnDeck requires a personal guarantee on all small-business auto loans.
- If your business has a low level of annual revenue, OnDeck is unlikely to approve you.
- Applicants with high credit scores are more likely to qualify for lower interest rates.
StreetShares
StreetShares provides small businesses with financing even if the business owner is unable to secure the loan with collateral. Many aspiring borrowers who get turned down by other lenders can still get access to funds through StreetShares.
Pros
- StreetShares doesn’t charge prepayment fees, while OnDeck (among other lenders) does.
- Veterans and businesses with modest annual revenues (~$75,000) can still get approved.
- StreetShares uses a form of peer-to-peer lending to link borrowers with like-minded lenders.
Cons
- StreetShares doesn’t operate in certain states, including Oregan, Montana, and the Dakotas.
- Borrowers in some industries (e.g., legal, agriculture, and real estate) may not get approved.
- Sole proprietors in several states (incl. New York, New Jersey, and Delaware) are ineligible.
Conclusion
If your company could use a new set of wheels, a business auto loan could be your best bet. Explore your options by applying to either of the above lenders.
