Vehicles are vital assets for any business. But in most cases, new companies such as start-ups do not have the capital to purchase these assets. As such, the best solution is to apply for a commercial auto loan. But like any financial obligation, there are many considerations you need to make before committing to a car loan. In this article, we will discuss several dos and don’ts when applying for a business car loan.
Do consider traditional and alternative lending options
In the past, banks are the only go-to institution for borrowing money. Nowadays, however, many alternative lending services offer all kinds of products, including loans for commercial vehicles. This provides a significant advantage because banks are often more strict when it comes to requirements. Even new companies have better chances of getting approved when they try alternative lending services.
Do prepare all the necessary documents
Applying for a commercial loan is slightly different from a personal loan. You will need to prepare extensive documentation relating to your business. Although the requirements may differ from one lender to another, you need to be ready with your company’s financial records, a detailed business plan, any pending accounts receivables, and outstanding debt with other creditors. The lender may also require that these records be audited first before submission.
Do compare the benefits of buying vs leasing
Buying vehicles for commercial use makes a lot of sense. But it is also good to consider whether it is best to get financing for a lease instead. Depending on the current financial situation of your company as well as your future goals, you may want to think about the benefits of leasing first before deciding to finance a vehicle purchase.
Do build your business credit rating
If you have limited business credit history, you may be forced to rely on your personal credit score to apply for a loan. This option is way riskier on your part. As such, you may want to hold off on the purchase until you have built enough business credit to quality. Relying on your personal credit rating will have many consequences, especially in case of default payments as this will negatively impact your score.
Don’t hesitate to ask the lender about fees
As the borrower, it is your responsibility to read the fine print and ask as many questions as possible. If there are vague terms, especially when it comes to interest rates, make sure to ask for clarifications before you agree. Take time to understand how the repayment works and make sure to know all your options in case of an unexpected payment default.
Don’t pay fees upfront
This reminder applies to alternative lending in particular. Since these companies are relatively new, not all of them are reputable. You need to look for a lender that is reliable and has already built a good reputation in the industry. One red flag you need to watch out for are lenders asking you to pay fees upfront. In a conventional commercial auto loan, the charges are already incorporated in the repayment.