How to Get a Commercial Vehicle Loan for Your Business
Commercial vehicle financing can make the expense of your business’s vehicles much more manageable. However, commercial vehicle loans aren’t like traditional business loans. Their application process, structure, and terms are all different.
To get a commercial car loan, you need to familiarize yourself with the unique characteristics of these loans. In this post, we’ll explain what you need to know to get this type of small business loan.
What is a Commercial Vehicle Loan?
A commercial car loan is a type of financing designed to help business owners finance the purchase of vehicles for their business. These loans can finance the purchase of many types of vehicles. Everything from passenger cars to a fleet of semi-trucks can be financed with commercial auto loans.
The structure of these loans is unique in that they use the vehicle(s) you purchase as collateral. Other than that, though, commercial vehicle loans are structured much like a personal car loan. You receive funds for a purchase and then you repay your lenders in regular installments of principal and interest.
Types of Commercial Vehicle Financing
If your goal is to finance the purchase of commercial vehicles for your business, you have options. In addition to business auto loans, you can consider funding options to purchase commercial vehicles, such as:
- Term loans
- SBA 7(a) loans
- Business Lines of credit
Also, you can get all of these loans—except for the SBA loan—from either a traditional or online lender.
What makes commercial vehicle loans different is that they’re specifically designed for financing commercial vehicles. With these loans, the vehicle you’re financing is the collateral. Since you’re providing collateral on commercial vehicle loans, the loan has less stringent approval criteria and is more affordable.
In fact, with the right business financing lender, you won’t need to sign a personal guarantee on the loan. This is a major benefit because it eliminates your personal liability. This, along with being more affordable and coming with better terms, makes them the ideal option for financing business vehicles.
Choosing a Commercial Vehicle Lender
Both alternative and traditional lenders make commercial vehicle loans, and these lenders have important distinctions.
Alternative lenders tend to have quicker turnaround times, meaning you can get funded faster. They also require less documentation and have more lenient approval criteria compared to traditional lenders. However, they also tend to charge higher interest rates and fees.
If you can qualify for a loan from a traditional lender, it’s the more affordable option. It’s not a no-brainer though; some creditworthy borrowers may still opt for alternative lenders for their superior speed and flexibility.
Applying for a Commercial Vehicle Loan
Before you apply for a commercial vehicle loan from any lender, ensure you meet their minimum approval criteria. These criteria will differ but commercial vehicle lenders typically have requirements related to:
- Your business credit score
- How long your business has existed
- Company revenue
- Type of vehicle
You’ll also want to verify that any potential lender provides loans for your type of vehicle. Some lenders only make loans on passenger vehicles, heavy-duty trucks, semi-trucks, or specialty vehicles. Finally, if you need to finance multiple vehicles, make sure your lender understands that when you apply.
Documentation Requirements for Commercial Vehicle Loans
As mentioned, alternative lenders tend to have less stringent documentation requirements for commercial vehicle loans. Regardless of the lender you apply with, you should be prepared to provide the following:
- Bank statements
- Credit report
- Tax returns
- Income statement
- Balance sheet
- Budget and future cash flow projections
In addition to this financial information, you’ll need to provide identification, business licenses, and proof of business ownership. Depending on your lender’s policy, you may need to sign a personal guarantee.
Conclusion: Boost Growth with Commercial Vehicle Financing
If you’re considering an investment in a commercial vehicle(s), you should be growing or have growth plans. Commercial vehicles are assets that require sizable initial investments and ongoing costs.
So if you’re purchasing vehicles, even if you’re financing, those assets must help you generate profits. If you’re not growing enough to utilize new assets, wait on commercial vehicle financing.
However, if you’re growing, don’t forget the power of using financing for your next commercial vehicle. This type of business loan is far more affordable and easier to qualify for than traditional loans. Plus, they help mitigate the cash flow impacts of purchasing vehicles for your business.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.