Buying a vehicle using business credit can be more complicated than buying a car for your personal use for several reasons. This can be due to how you’re using the vehicle, what type of financing you’re seeking and what terms a seller or lender ask for. Reviewing how to buy a vehicle with business credit will help you get the best deal for your company, recommends credit reporting agency Experian.
Make Sure It’s Legal
Many small-business owners purchase cars through their businesses, then drive them primarily for business use. Some business owners will buy an inexpensive car using their personal credit, then buy an expensive car using the company’s money, swapping the use of the cars. This is illegal. Make sure you have your attorney check your purchase to make sure you will be able to use the car legally.
Secured vs. Unsecured Loan
A secured loan occurs when the borrower puts up an asset the lender can take if the borrower doesn’t pay the loan. With vehicle sales, the auto is usually the collateral that secures the loan or other financing agreement. In some cases, you can get a loan without requiring security.
This is more likely to happen between parties that trust each other (such as a car seller who knows the buyer). Getting a business auto loan without collateral will be more difficult because banks and other professional lenders almost always require some type of loan collateral, explains LendingTree.com.
Is it Really Business Credit?
Before you consider using business credit to finance a vehicle purchase, make sure it’s really business credit that’s not tied to your personal assets. For example, small-business credit cards (unlike corporate credit cards) are tied to your personal credit.
Small-business credit card issuers pull your personal credit report, use your personal credit score to evaluate you and hold you personally responsible for the use of the card. With a corporate card (usually issued only to large businesses), the business is responsible for the card.
Read More: How to Buy a Used Car
Meet With the Car Seller
Don’t wait until you’re ready to purchase the car to talk to the seller. She might be willing to finance all or part of the purchase herself. This means she keeps the title to the car while you make payments (sometimes interest-free).
She might ask for a larger payment upfront (such as a deposit) and then let you make smaller payments over the course of a year or more. In this case, you might finance part of the car with a loan and part of it with the car seller. The lender will most likely want to take title to the car – the lender and seller both can’t secure their deals with the car.
Talk to Lenders
Once you know what type of deal the car seller is willing to accept, decide how you want to pay for the vehicle. You might want to take out a small-business loan, get a line of credit from your bank, use a credit card or pay part-cash/part-credit.
Find out if you can get the loan without using the car as security if the car seller is willing to finance part of the deal but wants to retain title to the car.
Be careful when shopping potential lenders. If they ask to do a hard pull of your credit reports, you should understand that this can lower your credit score by a few points.
Read More: What Is Business Car Insurance?
Check Into Insuring the Car
Make sure you know what type of insurance you’ll need to carry to make sure you can pay off the loan in the event the car is stolen or totaled. Talk to your insurance company and explain how you are purchasing the car and how much of the loan amount you want to insure. Talk to the lender and car seller to see if they require any extra insurance on the car.
Write Up the Agreement
Hire an attorney to draw up the sale papers if you’re doing a deal directly with a nonprofessional seller. Your lawyer will know how to set out the details to make sure you and the seller are on the same page. He will also be able to tell you how to get the title to the car.
If you’re working with a bank, credit union or other automobile financing company, they will draw up the loan documents. You should have your company’s attorney review the papers before you sign them.
Steve Milano has written more than 1,000 pieces of personal finance and frugal living articles for dozens of websites, including Motley Fool, Zacks, Bankrate, Quickbooks, SmartyCents, Knew Money, Don't Waste Your Money and Credit Card Ideas, as well as his own websites.