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I Was Able To Buy A Company Car Using A Business Line Of Credit. Here’s How I Did It.

Do you love driving around town in a nice car?

There are many reasons why a small business owner might want to buy a company car. Do you own a small business and need a reliable company vehicle to get to work each day.

Or maybe you’re just tired of being broke and would like to save some money and improve your cash flow. Whatever the reason, buying a car for your business may be the perfect solution.

But before you go spending thousands of dollars on a new car, make sure you understand how company cars work.

This article will explain how a commercial auto loan works and how to use a commercial line of credit to buy a company car with zero interest payments.

Wouldn’t a commercial vehicle loan as a business auto loan option be better than a consumer auto loan?

Company cars are an essential part of the corporate culture. They help business owners and even employees feel more connected to the company, saving companies on gas and maintenance costs.

But buying a company car isn’t cheap.

When you need a company car for your LLC or other types of businesses, how do you know if you are making the right choice for business vehicle financing? It’s essential to explore your options and speak with an advisor who understands your financial situation and business details.

One popular approach for auto financing is to use a business line of credit. Lines of credit might be an option instead of a personal auto loan, especially if you have a good business credit history. Learn more below about buying a company car using a business line of credit to see if it looks like a good fit for you.

car fleet

How to Purchase a Vehicle in the Name of a Business

In the United States, it is possible to obtain a business loan for a car, or commercial vehicles, under your business name. While a sole proprietorship is not permitted to purchase a vehicle, a limited liability company or corporation can secure a commercial loan or lease. 

Talk to a business tax expert about creating a business structure that works for you. 

Before you can begin, you must establish strong business credit, which can take up to two years. Be patient and take the time to do it properly. Speak with a business specialist or a business credit expert to take all the proper steps. 

The first step is to acquire a federal tax identification number. To establish business credit, you’ll need an IRS-issued (EIN). You can apply for an EIN (employer identification number) online, and you will use your EIN instead of your social security number. 

The idea is to keep your finances separate. That is why the sole proprietor cannot use this strategy. The sole prop uses their personal credit scores and a personal guarantee instead of a business tax identification number. 

Alternatively, you may use IRS form SS-4, available on the IRS website.

Talk to business experts, either a CPA or business attorney, to determine the best course of action for purchasing a car through your LLC. While you can build your business’s credit by buying a vehicle through an LLC, the LLC is responsible for any damage to the business vehicle. 

That means that any lawsuit is against the business instead of you personally. If your company is doing well, it could result in a business failure.

However, depending on the structure of your LLC, it may provide deductible business expenses and other tax benefits; therefore, consult your CPA to determine the best format for your business.

Create a credit bureau account. Contact Dun & Bradstreet, the most prominent business credit bureau in the United States. You can create a business profile and attach documents such as financial statements. 

Before applying for a business credit card, create an account on Dun & Bradstreet’s website. Your account will help establish your company’s business credit rating. 

The idea is to be actively building business credit. Seek out a business professional if you are unsure how to do it properly. 

You must have at least three trade lines to obtain a Dun & Bradstreet credit score (called a Paydex score). 

Large retailers such as FedEx, Home Depot, and Staples carry trade lines, and they will help you build your business credit reports. 

Request that the vendor reports your monthly payment information to Dun & Bradstreet if they are not already doing so.

Increase the credit score and credit profile of your business. It may take your business up to two years to build up enough credit to qualify for a car loan. For you to achieve the highest possible credit score, take the following steps:

Make on-time payments on your bills for more access to money. Always pay your bills on time. A history of timely monthly payments will assist you in improving your business’s credit score. Additionally, timely payment is critical, as this is the only way to earn the highest Paydex score. Look at your billing statement and billing period. Always pay before the statement closing date. 

Avoid excessive credit usage. Set a borrowing limit for each card and use no more than 20%-30% of available credit. Keep a tight grip on your credit card spending and avoid unlimited spending. 

The best credit cards for business are the ones that are strictly in the business name. Look at Ramp. It’s an easy way of securing a large credit limit without using your social security number. 

Conduct a thorough audit of your public records. Make every effort to resolve a client’s debt and obtain the lien’s release. Your credit score includes bankruptcies, liens, and court judgments against your business, and these items all affect your credit score negatively.

Consider whether a guarantor would be beneficial. Specific lenders will refuse to finance an LLC without a guarantor, and the guarantor’s credit score will determine the financing. You will need a solid personal credit report if this is the case. 

If you have bad credit, seek out business partners with strong personal credit to secure more favorable rates. Lines of credit can be available for those that take the time to meet the credit requirements.

One challenge is if the guarantor has an excessive number of vehicles registered in their name or has poor credit. The car for your LLC may be denied or approved at a higher rate. Another factor is your debt-to-income ratio and how it affects your LLC’s credit.

Business Purchase of the Vehicle

Confirm your business’s creditworthiness from the business credit reporting agency. Before visiting a dealership, you should obtain a copy of your business’s credit report from the three major credit bureaus at their respective business credit websites:

  • Dun & Bradstreet
  • Equifax
  • Experian

Companies have credit scores ranging from 0 to 100.

You must pay to view your business’s credit score and payment history if you have one. Separately, contact each bureau. Experian can provide you with your credit history, Equifax can provide you with your Equifax score, and Dun & Bradstreet can provide you with your Dun & Bradstreet report.

At least an 80 credit score is considered satisfactory and should qualify you for loans.

Consider a lease agreement rather than purchasing one if your business’s credit is spotty. Leases are more economical than business auto loans.

Identify dealerships that specialize in commercial sales. These divisions are devoted to assisting businesses with vehicle acquisition and registration. You may even be able to buy or lease a car online. 

Visit a dealership and inquire about the availability of a commercial sales department, which may streamline the vehicle purchase process. If you need a heavy duty truck and seek truck financing, you’ll unlikely find it at the Porsche dealership. 

Choose a mode of transport that is appropriate. For instance, if you own a catering business or a cake delivery company, you may need to purchase a minivan. If you’re building in-ground pools, maybe cement trucks make sense. On the other hand, buying sports cars (for business use), in either case, may raise red flags with the IRS.

Never use your business to purchase a vehicle for personal use. Speak to your tax professional about the potential liability. There is no problem if it’s for business travel and you drive home every night. Just keep track of your business miles. Maybe take out a personal loan with the best interest rate and use this as a financing option while writing off the percentage of business usage. Talk to your CPA about this strategy. 

Financial data should be supplied. You will find that lenders at any financial institution will want to see various financial business documentation before extending a loan. They may, for example, request access to your business’s financial records, such as its balance sheet, cash flow statements, or even tax returns.

Additionally, you can anticipate the lender conducting a credit check on you. As a result, you should request and review a complimentary copy of your credit report. Resolve discrepancies with the credit reporting agency if the information contained in the report is incorrect. Correct any other outstanding business issues before you submit an application for credit. 

Finance your business in the name of the enterprise. Financing is available through the dealership, a local bank, or a credit union. Always indicate that you are applying for a loan in the name of your business. Lines of credit may not be available at all the dealerships or banks. You may need to find a business lender in some circumstances. 

Comparing business loan rates and other loan terms enables you to secure the best possible deal. You should not assume that the dealership is offering the best value, even if it is the most convenient option for financing.

Guarantee the loan term. Your business credit score may be insufficient to qualify for a loan in your sole name. The lender you chose may require you to sign a guaranty. This “guarantee” means that you are personally liable if your business cannot repay the loan.

Before proceeding, carefully consider your actions. The lender may sue you and seize other personal property to collect on the loan, like real estate. 

Review the application forms carefully. Not all business vehicle loans are the same. 

Pay your loans on time. Always make business car loans payments using your business bank accounts. Payments made from personal accounts create the impression that your business is a sham.

Purchase car insurance. If the vehicle is primarily for business purposes, you should consider purchasing commercial auto insurance. On the other hand, maybe personal auto insurance is preferable if you only use the car for business purposes part-time.

Take into account the number of additional employees driving the car.

You can get insurance from several major insurers, including Geico, Allstate, and Progressive. Additionally, Google for local insurers that may offer lower rates.

Contact the insurance agent who sold you business liability insurance if you’re unsure how to proceed.

Register the vehicle in the business’s name. The laws governing automobile registration vary by state. You will undoubtedly be required to demonstrate your business’s proper organization by submitting copies of your Articles of Organization or Incorporation. Contact your state’s DMV for registration information.

Claim a tax deduction. The tax rules are complicated. The rules differ depending on whether:

  • an LLC owns the vehicle
  • a single-member LLC
  • a corporation
  • or a partnership

 

Consult a tax professional for additional information. Make sure you send a member or manager of the business to register the vehicle, not an employee.

You should pay all of the registration fees from your business checking bank account. Personal checks are not required.

If necessary, keep a mileage log. You can use the vehicle for business or personal purposes. However, you may deduct only the portion of the cost related to your business.

Maintain a mileage log, if necessary, in which you track your business-related travel.

OTHER CONSIDERATIONS:

Buying New or Changing Ownership

When buying a car for an LLC, the first thing to consider is whether you want to use the personal car you already own or buy a new one altogether. If you choose to use a personally owned vehicle when you first start your business, it will likely be considered a capital donation. 

You can also have the company purchase your vehicle from you for its fair market value. This purchase may save the company some money, but you can choose a car with the exact specifications needed for your company’s operations by buying new means.

Single Car or Fleet

It is also a good idea to consider the number of vehicles needed. Can you sufficiently run your business operations with only one car? In many cases, you may need a fleet of vehicles.

Often, you can work directly with manufacturers to get several identical vehicles for a better price. Just make sure you know the terms and the minimum number of vehicles required.

Business Financing Options

The coronavirus’s unexpected and significant impact took small businesses off guard. Demand for your construction or repair services may fluctuate as your clients weigh the consequences of COVID-19 and decide how to spend their budgets, affecting your business.

Small business operators like you can now use funding options provided by the Small Business Administration to keep their operations running while the coronavirus threat is still present. Purchasing new utility vehicles with the help of an SBA loan could not come at a better time.

For small businesses of all sizes, the government is making it easier to receive SBA loans, which means you may be eligible for loans and grants that you typically wouldn’t. Consider investing in modern utility vehicles to make the most of your newfound resources.

Once you have determined your company’s needs and chosen the vehicle(s) you wish to purchase, you need to consider business financing solutions. There are several financing options available, including commercial truck loans, a business term loan, and lines of credit. Do not take out personal loans if you genuinely want to make this a business asset.

Make an appointment with a lender, financial advisor, or even alternative lenders who have experience with businesses like yours. Choose someone you trust who will keep you well informed and guide you through financing. Sunwise Capital works with small businesses to help them obtain the funding they need to grow and reach their goals.

Business Line of Credit

One popular choice for buying a company car for an LLC is using a business line of credit. With this type of financing from Sunwise Capital, you can get approved quickly. We use a soft credit pull, which will not affect your personal credit, but you will need to have a good credit history. 

You will be approved for the maximum total possible loan amount and then be required to make payments on what you use, similar to a credit card.

Sunwise Capital

Sunwise Capital is a group of former small business owners and focuses on assisting current business owners with a small business loan. We make it our goal to provide you with all the tools you need for success and to help you make intelligent financing choices. We do not require you to fill out mountains of paperwork like other lenders, and we can customize loan options to meet your individual needs.

Contact Sunwise Capital today to speak with one of our loan experts and get more information about financing options for buying a company car for an LLC.

Mark J. Kane is a successful entrepreneur and small business owner. He spent 17 years in the investment banking industry. As CEO of Sunwise Capital, he understands the challenges of building a business through equity, debt, and off-balance sheet financing.

Take Your Business Further With A Loan From Sunwise Capital