Business car loans can be a little tricky to navigate if you’re unsure on what product will suit your business needs and structure, however there are a few things to consider before applying for business car finance.
What is Business Car Finance?
A business car loan is a loan product offered to Sole Traders, Companies, Trusts, Partnerships and consumers who are using the vehicle predominately for work purposes. Various taxation benefits are offered for business car finance which can include claiming the GST component, interest payable on the loan or the loan repayments. Products available for business car loans include Chattel Mortgage, Leasing, Commercial Hire Purchase, Line of Credit and Unsecured Loans.
What is the loan term for a Business Car Loan?
Loan terms can vary from 1 year through to 7 years and can include an option for a balloon / residual payment. The repayments are generally fixed for the term.
What is a balloon / residual payment?
A Balloon or Residual Payment is percentage of the loan amount you can hold as a last / final payment. Balloon payments can be a good option if borrowing higher loan amounts however you need to take into consideration what will you do when the balloon payment is due.
To give you a guide on how a balloon payment works.
WITHOUT A BALLOON
Loan Amount $50000
Term: 5 Years
Indicative Interest Rate: 5%
Approximate Repayments $944 per month
WITH A BALLOON PAYMENT
Loan Amount $50000
Term: 5 Years
Indicative Interest Rate: 5%
59 Approximate Repayments $760 per month
1 Final Payment $12500 (25%) Balloon
The pros of a Balloon Payment
Repayments are lower which can help with Business cash flow, allowing you to free up cash for other business expenses.
The cons of a Balloon Payment
You will have a lump sum payment due at the end of your loan term. Most lenders will give you the option to refinance or payout the balloon payment. Or you have the option to trade the car which will payout the balloon payment and purchase a new one. If your circumstances have changed since commencing the loan (ie: closed business, bad credit) the lenders will treat this as a new loan application, so will be subject to normal assessment criteria.
Business Car Loan Benefits
Purchasing assets for business use can attract taxation benefits including claiming the government’s instant asset write-off, claiming GST from the purchase, claiming the interest component through to being able to claim the repayments as a business taxation deduction.
Each Business Car Loan product comes with it’s own benefits and disadvantages, so it’s advisable to speak to your accountant regarding what option would suit your business structure.
How to improve your chances of business car loan approval
If you’re planning on purchasing a car for business use and are needing to finance, here are a few points to keep in mind.
Are your Business Financials up to date?
Having up to date financials can offer you a wider range of lenders to choose from. Although it is possible to finance a business car without showing any business financial information, the simple rule to follow is: The more information you can provide, the more options are available to you.
Does your business have sufficient cash flow to cover another debt?
Before entering into a finance agreement, check your business budget to ensure you can cover the monthly repayments comfortably.
Credit history is important.
Maintaining a good credit history is important, both personal and business credit files. As most lenders / banks follow positive reporting, your repayment history, loan balance and overdue accounts are shown on your credit file. Lenders use this information when assessing your loan application.
What do I need for a business car loan?
To apply for a business car loan you may need to provide some information. This includes:
Your Australian Business Number (ABN)
Your Business Financials, which can include Bank Statements for up to 180 days.
What about if I have bad credit history, can I still get a Business Car Loan?
If you have had bad or slow credit in the past it doesn’t mean you can’t be approved for a car loan. It does however reduce the range of lender options available to you.
Before applying, it’s advisable to contact one of our business car loan specialists to find out how we can help.
