Sometimes businesses run into trouble with their finances, leaving them with bad credit. A poor credit history limits your chances of approval for a car loan, even if the car is crucial to business operation.
The commercial loan difference
Commercial loans are very different to consumer loans (marketed just as “car loans.”). Car loans for business people allow much more latitude than consumer loans do. Lenders secure the loan against your vehicle. You must use your car for more than 50% business use to qualify. These loans come in two different variants: chattel mortgages and hire purchase. Both work the same in principle, but look different on your balance sheet. A chattel mortgage means you gain an asset; a hire purchase means your repayments are taken out of operating expenses as the vehicle’s title remains with the financier.
Businesses can apply for chattel mortgages and hire purchases without a deposit. You can also claim the GST back on purchase price and tax deductions on depreciation, interest payments and full input credits (ask your accountant if your business or asset is eligible.)
More than 100% finance?
In many cases, the amount you finance can exceed the value of your car. This way you can keep cash flowing as you begin to correct your credit. With the extra money, you can pay off maintenance, registration or insurance cost over the course of your loan. In many cases, you can extend or shorten the loan term according to your needs and offset regular repayments with a balloon (residual value) payment due at the end of the loan.
How you can help your business car loan application?
You can help along your finance application; perhaps achieve a better car loan interest rate. Though you can finance a car without a deposit, it’s generally a better idea to put some money upfront to have ‘skin in the game.’ This puts less burden of risk on your financier that may influence your offered interest rate. You should also check your own credit history (if you are a sole trader) to see if you have any errors recorded on it.
Honesty is the best policy
At the end of the day, you should be honest with your lender – you are entering into a long-term business partnership after all. Openness and transparency about your situation will always go in your favour. Once you regain your financial standing, you can ask your lender about refinancing at a more favourable rate. To find out if this is right for you, you should speak to a financial professional first.
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