You are starting a business, and you need some company vehicles. How do you go about acquiring them? What are the proper channels, and what are the best ones to go down? Below we will give a brief overview of auto financing.
Where to Start?
Banks, credit unions, and other financiers such as online lenders give you a large array of options to choose from. There are some common standards that all lenders follow. If you are a corporation, one major component to getting approved is to provide documents showing ownership. A 20 percent stake must be held, and items such as your business license, partnership agreement, or limited liability company documents may be required.
Going the Business Loan Route
If you are seeking to use a small business loan as an avenue to secure financing for a car, you will need to show that your business has been around for at least two years. Positive cash flow is required to ensure it can be paid off. If the loan is a sizable one, say for a fleet of vehicles, you need to present a business plan to the lender. A business plan shows the purpose of the vehicles you wish to purchase.
Buying vs Leasing
A cheaper option for beginning businesses, or for those who are short on capital, is leasing. The more expensive the vehicle, the better it is to lease, as the monthly payments are generally lower. There are also tax benefits that come along with leasing. You can deduct the business use percentage of your vehicle from the yearly lease payment, potentially saving you thousands. However, a bonus for owning a business vehicle is when you dispose of it, there can be a taxable gain or loss that is not applicable to leased vehicles.
Getting the Most Favorable Rate
Just like any other form of financing, to lock yourself in a loan that works best for you relies on basic factors. If your credit score is low, this not only makes the payments higher but this can also make it harder for you to secure any financing at all. The loan term is a significant factor. The shorter it is, the lower the interest rate but the higher the monthly payments. Long term loans are the opposite, with higher interest rates but lower monthly payments.
If a vehicle is older, it obviously has a lower value and an increased risk of breaking down. Therefore, lenders want to receive their payments sooner than later, which leads to higher interest rates and shorter loan terms. Newer vehicles have a higher value, and lenders are more willing to accept lower interest rates and longer loan terms.
Lastly, a great way to lower the monthly rate is to put a sizable amount of money down. This shows the lender your commitment to the purchase you are making, and you are paying a chunk of the loan immediately.