Best Auto Loans For Business Owners

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 a 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 Personal Guarantee?

A business auto loan with a personal guarantee is a legal commitment made by a business owner or a co-signer, to take personal responsibility for repaying the loan if the business cannot meet its repayment obligations. It means the personal assets and finances of the guarantor can be used to cover the loan amount, interest, and any fees or penalties if the business defaults on the loan. A business auto loan with a personal guarantee is common in lending, for small businesses or startups with limited credit history or financial stability. Lenders use personal guarantees to reduce their risk and increase the likelihood of loan repayment. However, they also expose the guarantor to personal financial liability in the event of loan default.

What Is a Business Auto Loan Without a 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.

When You Need to Personally Guarantee a Business Auto Loan

A personal guarantee for a business auto loan is typically required in the following situations:

• New Businesses: Startups or new businesses with limited/no credit history need personal guarantees due to financial stability concerns. Getting a commercial vehicle loan without a guarantor from a traditional bank can sometimes be difficult without a personal guarantee..
• Poor Credit: Businesses with low credit scores or poor credit histories may face personal guarantee requests.
• Weak Finances: Insufficient business finances, like cash flow or revenue, can trigger personal guarantee requirements.
• High Loan Amounts: Large loans may demand personal guarantees, especially for substantial financing.
• Risky Vehicles: Financing for depreciating vehicle models may necessitate personal guarantees due to risk.
• Lender Policies: Some lenders mandate personal guarantees, regardless of creditworthiness.

How Can You Get Business Auto Loans Without a Personal Guarantee?

The reason getting a business auto loan with no personal guarantee can be challenging is because many lenders require a personal guarantee to mitigate their risk. However, there are some strategies to secure a business auto loan without a personal guarantee:

• Strong Business Credit: Build and maintain strong business credit. Pay your business bills and loans on time, demonstrating financial stability. A strong business credit history increases your chances of qualifying for a loan without a personal guarantee.
• Established Business: Lenders are more willing to provide loans without personal guarantees to well-established businesses with a proven track record of success and profitability.
• High Business Revenue: Show lenders that your business generates sufficient revenue to cover payments.  Healthy cash flow can be a persuasive factor in securing business auto loans with no personal guarantee.
• Collateral: Offer valuable business assets or collateral to secure your loan. This reduces the lender's risk, making loan approval more likely without a personal guarantee.
• Shop Around: Explore alternative lenders and financial institutions specializing in business auto loans through Primerates.
• Build Relationships: Establish a strong relationship with potential lenders. They may be more inclined to offer favorable terms or exceptions to long-standing customers.
• Co-Signer: Consider finding a co-signer with a strong credit history and willingness to guarantee the loan on your behalf. This co-signer can increase the chance that the lender will approve the loan without a personal guarantee.
• Alternative Financing: Find the funding you need with leading alternative lenders through Primerates like OnDeck that considers your overall business performance rather than just relying on your credit score. StreetShares specializes in financing business auto loans, even for applicants who have faced rejection from other lenders in the past.

Each lender has its own lending criteria, and securing business auto loans without personal guarantee is not guaranteed. Explore your options while improving your business's financial profile. Consulting with a financial advisor or business loan specialist can also provide valuable guidance in your pursuit of a commercial auto loan with no personal guarantee.

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, 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.

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.

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