Commercial vehicle financing can make your company’s vehicle costs more manageable. However, commercial vehicle loans are different from traditional business loans. The application process, structure, and conditions are all different. Getting a commercial vehicle loan requires familiarizing yourself with the unique characteristics of these loans. This post explains what you need to know to get this small business loan.
What is a commercial vehicle loan for a company?
A commercial vehicle loan is a type of loan designed to help business owners finance the purchase of a vehicle for their enterprise. These loans can finance the purchase of many types of vehicles. Commercial vehicle loans can finance anything from cars to fleets of semi-trucks. The structure of these loans is unique in that they use the purchased car as collateral. Apart from that, commercial car loans are similar to personal car loans. You receive the funds for the purchase and repay the lender in periodic instalments of principal and interest.
What’s special about commercial vehicle finance for small businesses is that they are designed specifically to finance commercial vehicles. With these loans, the vehicle you purchased is used as security. Because you provide collateral for commercial vehicle loans, the loan approval standards are less stringent, and costs are lower. In fact, with the right business finance lender, you do not even need to sign a personal guarantee for your loan. It is a vast advantage as it eliminates personal responsibility. It offers affordable prices and better terms, making it an ideal option for financing business vehicles.
How to choose a lender for commercial vehicle loans for companies?
Many lenders in the financial market provide loans for commercial vehicles. Traditional lending institutes such as banks also fund the purchase of vehicles for commercial usage. Banks, however, will take longer to process your loan like in any other type of loan. They also require more documentation and have stricter eligibility criteria compared to traditional lenders. Other lenders might ask for fewer documents, but charge more interest rates and fees. So, you have to choose between the two types of lending institutes. Prioritize if you want asset finance at a small cost or want funds quickly.
How to apply for a Commercial Vehicle Loan for Business?
Before applying for a commercial vehicle loan with a lender, make sure you meet the minimum eligibility criteria. These standards vary, but commercial vehicle lenders typically ask:
- Business credit
- Company lifespan
- Company performance
- Vehicle type
You should also ensure that each potential lender offers credit for your vehicle type. Some lenders only provide loans for passenger cars, heavy trucks, semi-trailers, or specialty vehicles. Finally, if you need to finance more than one vehicle, make sure your lender understands this when you apply.
What do you need to apply for a vehicle loan for a company?
To apply for vehicle finance for a small business, you must first meet the lending criteria. The requirements for a company to finance a car are:
Be a tax resident of New Zealand
Your company must be registered with a New Zealand Business Number and reside and operate in the country.
Use of Vehicle for Business Purposes
You must use the car only or primarily for business purposes.
Run a Profitable Business
You must prove that your business is profitable. It also proves your ability to repay.
It increases your chances of getting a loan approved and also helps you get lower interest rates. Poor credit quality may result in fewer borrowing options or higher interest rates to compensate for the additional risk the lender is taking.
Make sure you have the following documents on hand, as you may need to provide them for evaluation purposes:
- Annual accounting
- Cash flow statement
- Tax returns
- Business ownership (if applicable)
- Evidence of income
- Auto insurance
- Personal Finances
Before starting the application process for commercial vehicle asset finance, you should also ensure that the lender you are applying for offers the loan amount and terms you want. Once you have chosen the car you want, you need to know how finance it with a lender.
What to look out for when comparing business loans for vehicles?
It is important to compare business car loans and choose the right loan for your business needs. Factors to consider are:
The length of the loan term can affect the interest rate offered, and different lenders offer various interest rates for the loan term.
These may include managing, setting up, and supporting funding options. Knowing them in advance can help you avoid unpleasant surprises later. If financing your desired business vehicle involves leasing the car, you will need to determine whether you should purchase vehicle insurance as a condition of the financing.
Pay back debt
Regardless of the business vehicle loan you choose, you will need to make regular repayments by incorporating it into your company’s cash flow plan. Finding an automated loan option that allows you to adjust your repayments to match your cash flow can be valuable.
If you are looking to invest in one or more commercial vehicles, you must be growing or planning to extend. Commercial vehicles are assets that require massive initial investments and ongoing costs. So, when you buy a vehicle, those assets should help you generate a profit, even if you raise the money for it. Taking asset finance for a vehicle is of no harm if it is profitable for your company. You can pay it off without difficulty with the money earned.