Resources for Commercial Vehicle Loans

Commercial Vehicle Loans Business Guide: Financing For Your Commercial Trucks and Vehicles

Commercial vehicle loans and leases are two of the most popular and common options for financing trucks and other vehicles intended for business use. Loans offer capital with which business owners and operators can purchase the necessary vehicles, while leases allow businesses to obtain them without making a cash purchase. Whether your company requires commercial semitrucks, delivery trucks, or other vocational equipment for a smooth operation, financing your commercial vehicles allows you to acquire the equipment you need at reasonable prices and without investing too much money upfront.

Benefits

Loans

Two options are available to business owners looking to finance company vehicles – commercial vehicle loans and commercial vehicle leases. Deciding whether to apply for a loan or lease depends largely on how the vehicle is to be used. If the truck you hope to purchase will be in operation for more than five years, it’s generally recommended that you purchase with a loan, which may be the most cost-effective solution in the end. It also makes more sense to purchase low-mileage vehicles or ones that will be heavily customized with advertisements and other add-ons. While modifications may require some financial investment upfront, the long-term ad benefits from your business’ increased visibility can be substantial.

Leases

On the other hand, leases can be the more convenient option for vehicles that will be used short-term, less than five years, requiring less financial investment in the long run. Leases are also a feasible alternative if you can’t find anyone to finance your commercial vehicle with a loan. Both loans and leases offer tax deductions that you can claim, but depending on how the vehicle is used, it may be more beneficial to apply for one type of financing over the other.

Reduced Expenses

When you don’t have the total capital required to purchase a vehicle that is integral to your business’ successful operation, commercial vehicle loans and leases can allow you to get your business up and running without too much delay. Commercial vehicle financing lets you acquire the equipment you need without making a huge upfront payment and cutting into your budget or profits. If you have good business or personal credit, it’s very likely that you can finance your vehicles at reasonable interest rates and small monthly payments. This means that you’ll be able to pay off your loans sooner rather later and make a profit at the same time.

Discounts

Financing commercial vehicles often come with financial help other than the capital you need to purchase your equipment. Oftentimes, manufacturers and lenders offer cash discounts and other options to help upgrade vehicles or purchase a fleet. Some manufacturers will offer discounts to business owners purchasing a fleet of vehicles such as with offering a free vehicle with every fleet purchase or options to customize the vehicles. Small or medium businesses can especially benefit from this type of incentive.

Farms and other businesses that intend to use the vehicles for agricultural use are often given a cash allowance, usually ranging from $200 to $500, that can be used to optimize the vehicle for maximum performance. Other manufacturers provide certain customers, such as recent college graduates or those in the military, access to discount programs that can save new business owners money off the original cost of the vehicle.

Tax Incentives

Being able to deduct business expenses related to commercial vehicle usage on your taxes can be significant boon to any business owner. Both the state and federal government offer numerous tax incentives for vehicle-related expenses garnered in a business capacity. Business owners can deduct loan finance charges, insurance, cost of fuel and maintenance, and other expenses, while small business owners can also claim credit by depreciating their vehicle.

Pitfalls

Personal Guarantee

In the best-case scenario, a business owner would be able to finance the vehicle under the business’ name and eliminate any personal liability. Monthly payments would be low along with interest rates, providing the perfect situation for repaying loans in a timely manner. However, for new businesses and companies that lack good business credit, financing commercial vehicles under the business’ name may be difficult to impossible or may come with exceedingly high interest rates, monthly payments, and a substantial down payment. To avoid this or in order to persuade the lender to finance your vehicles, it may be necessary to personally guarantee the loan, and the lender will take into account your personal credit history before financing. After a couple of years of making payments on time, it may be possible to refinance the vehicle in your business’ name.

Impact on Credit History

Whether you obtain a loan in your business’ name or by personally guaranteeing it, it is important to make timely payments on a consistent basis. Failing to make payments can negatively impact your business credit and personal credit, making it harder for you to obtain future cash flow.

Pricing

With a high credit score, cash assets, and great payment history, it is very likely that you can receive decent interest rates and monthly payments on your loan without having to make a significant down payment. However, if you can make a substantial down payment, up to 20% even, then the lender may be more willing to offer lower interest rates because of the reduced risk on its part. This makes any initial financial investment on your part worth the effort since you will be able to pay off the loan more quickly and see profits that much sooner. It is also best to shop around and appraise several lenders to get the best rates. Becoming pre-qualified for financing lets you gauge what interest rates are being offered and gives you a better basis for comparison. A secured loan, which uses an asset as collateral, usually brings lower interest rates than unsecured loans, which are not as common. Also, to reduce any initial upfront cost when financing your commercial vehicle, you may want to opt for used vehicles, which are plentiful and less expensive.

Commercial vehicle loans are great options for business owners that rely on transportation in order to operate some part of their business. Obtaining a loan does not have to be financially crippling and can even provide cost benefits that reduce the impact of your investment in the long run. With numerous lenders to choose from, significant discounts, and other incentives, getting a loan or lease to finance commercial vehicles is usually the most convenient and cost-effective option for businesses.