How to get the most value out of your company car

Company cars come in many shapes and sizes, but one thing is for sure: At some point your business growth may depend on having a reliable vehicle.

Whether they're being used to deliver products, drive sales, advertise your brand, or flaunt your success, there’s no denying how important a role commercial vehicles play in your business operations.

However, not all small businesses can simply purchase a vehicle on the spot, cash in hand. This is exactly where commercial vehicle loans save the day.

What are commercial vehicle loans?

Commercial vehicle loans, or business auto loans, can be used to purchase or refinance a vehicle for your business. With a commercial vehicle loan, business owners can secure a company vehicle immediately without having to pay full price up front. Instead, the lender provides the cash needed to fund the vehicle and allows the business owner to pay the total loan amount, plus interest and fees, over a longer period of time.

Whether you need a vehicle for product delivery or lunch with a client, commercial vehicle loans are a great option for businesses looking to secure a car or truck for any purpose.

Where to get a commercial vehicle loan.

The Small Business Administration (SBA)

An SBA loan is a small business loan that is backed by the government. In this case, the Small Business Administration (SBA), agrees to guarantee certain loans issued to small businesses by banks and other lenders. Because of this guarantee, lenders are more willing to fund loans they see as risky (think business owners with little experience or poor credit scores).

Interest rates tend to be low on these loans which is an obvious advantage.

Not surprisingly, these SBA backed loans are not easy to land. Expect to fill out piles of paperwork and be prepared to prove at least two years of business activity. The prerequisites for loan application approval are stringent and often require that you put up collateral.

SBA loans are not an ideal solution for owners who need cash fast. Expect to wait several weeks before you learn whether you’re approved for the loan.

Your local credit union

Getting an auto loan with your credit union is a completely different experience. When you become a member of a credit union, you become a shareholder. Meaning the profits come back to you in the form of better rates and better service.

One of the biggest advantages you’ll have when financing an auto loan through your credit union is a lower APR. Since you’re working directly with the lender, you’ll only hear the actual rate instead of a marked-up rate the car dealer presents to you.

As member-owned institutions, credit unions famously offer loan rates that are consistently lower than those offered by large lenders and banks. In fact, according to Bankrate, the average APR on a credit union auto loan in the beginning of 2019 was a full point lower than the rates offered by banks.

Another key advantage you’ll enjoy from a credit union-financed auto loan is a more relaxed setting when determining how much you can afford to pay each month toward your new car. In contrast, when you’re standing in the dealer’s lot surrounded by cars you wish you could afford, you’re far more likely to make a decision you’ll come to regret later.

A traditional bank

This is the option most business owners think of when it comes to financing a company vehicle.

Back in the day, business owners would simply talk to a business loan officer at their local bank, sign an installment loan agreement, and get the money they needed at a fixed interest rate.

Thanks to the 2008 financial crisis, banks have dramatically reined in their approval criteria. Today, only about 25% of small business loan applications are approved.

Traditional business loans go to companies with solid financials and near-perfect credit scores. Even then, it can take weeks or months before the loan gets funded and they may be asked to put up collateral to get the financing in the first place.

For the majority of small business owners, applying for a business loan means jumping through hoops and completing a mountain of paperwork, with no guarantee the loan application will be approved.

To lease or not to lease? That is the question.

If you’re on the fence about leasing a vehicle for your business or financing the purchase with a commercial auto loan, here’s some food for thought. A lease is essentially a contract to rent the car for a period of time. Lease payments tend to be lower than loan payments, because when a loan is paid, you keep the car! The loan is buying the whole car, and not just the depreciation it has during the first few years.

However, since you won’t own the automobile, you won’t be able to consider it an asset when calculating your business’ worth. On the flip side, a commercial auto loan allows you to own your company car or truck while also paying it down gradually. The pain of payments lasts only one-to-four years, but you can potentially be driving the vehicle for a decade or more.

Compared to the many pressures that come with owning a business, deciding whether or not to get a commercial auto loan should be an easy choice.

However, if you’re seeking personalized expert guidance, consider scheduling a Total Business Review at Louisiana FCU. Our trusted Business Services Advisors will objectively help you identify your biggest opportunities and determine next steps.

Or call 985.652.4990 to speak to one of our experts.

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