Business Vehicle Finance – Business Car Loans, Truck Financing & Alternative Options
Kia Picanto - the most popular leasing car. Image from kia.com.
For many businesses, having access to a vehicle, a truck or even a fleet of vehicles, is absolutely essential in order to get the job done. Funding a new or replacement vehicle can be expensive enough as it is, so on top of calculating the tax implications, you’ll want to find the best business car loan rates or truck finance interest rates available to your business – saving as much as possible on the way. Whether it’s small business car loans or a complete vehicle fleet financing solution that your business requires, there are plenty of Australian lenders offering a wide variety of business car finance options, most notably asset finance, which also incorporates things like truck financing. In this guide, we break down all of the different car loans for abn holders as we also answer questions like what are chattel mortgage car loans? And are low doc car loans available in Australia?
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What Business Car Finance Options Are Available to my Business?
Secured Business Loan / Chattel Mortgage
This is perhaps the most popular choice for business car finance as it means the borrower can own the vehicle outright, from the start. As soon as the vehicle is purchased, the business has full use of the vehicle and is responsible for all expenses. The lender simply takes a mortgage over the vehicle whilst the business repays the business car loan. A chattel mortgage is when a mortgage is taken by a lender on a movable piece of property or movable asset such as a vehicle, granting the lender a charge over the asset which they may invoke should a borrower default on its loan agreement. So in the case of chattel mortgage car finance – where the business vehicle acts as security for the loan – this cannot be done off balance sheet. However, some businesses may be eligible for a tax deduction with chattel mortgage car finance.
Commercial hire purchase (CHP)
A commercial hire purchase is another type of car loan for abn holders. Unlike a chattel mortgage, your business will not own the vehicle from the offset. Instead, a CHP means you are hiring a car from a lender until it is paid off in full. However, providing you pay the loan off in full, you will take ownership of the vehicle at the end of the commercial hire purchase.
Under a finance lease, the lender purchases the asset on behalf of its customer. The customer then pays the lender a fixed monthly lease fee until the end of the agreement. A finance lease is similar to a CHP as the borrower will usually (though not always) own/purchase the car at the end of the lease.
This is a pure lease facility – as the borrower you will not own the vehicle at the end of the agreement, simply lease the vehicle for the duration it is required. As a result it is off-balance sheet as the vehicle appears on the lender’s balance sheet. For the borrower, lease payments are a tax deductible operating expense.
Novated Car Lease (i.e. company car)
Usually offered under a ‘salary sacrifice’ scheme, the car lease fees are deducted from an employee’s pre-tax income, resulting in the employee paying less in income tax. A novated car lease is an agreement between the lender, employer and employee that can bring benefits for all parties.
The Federal Government’s Electric Car Discount Bill
The Federal Government’s Electric Car Discount Bill, which was introduced in Parliament on 27 July 2022, motivates Australian small businesses to buy an electric vehicle.
Small Business Loans Australia found that the Bill would incentivise two thirds of SMEs (66 per cent) to purchase an electric vehicle for their business at some point. Over half (51 per cent) would make a purchase by 2024. Just 9 per cent would be ready to purchase this year, but the bulk of purchases – 31 per cent – would be in 2023. Fifteen (15) per cent would go ahead in 2025 or after.
Some lenders, such as Shift, offer dedicated business vehicle finance. Other online lenders in Australia take a different approach, they provide multi-purpose business loans that can be used for virtually any business expense and a company car certainly qualifies. Usually ranging anywhere from $5,000 – $500,000, you can find the best small business loan providers here.
Line of Credit
Although a line of credit is more commonly used to cover working capital shortfalls, there’s nothing to say you can’t use it as your vehicle finance. Similar to short-term small business loans, there’s a huge variety of online lenders providing a business line of credit and funds can be used for any relevant business purposes. Given there are likely to be higher rates and fees involved, it’s unlikely you’d want to finance expensive vehicles through a line of credit but you can access facilities up to $750,000 with Shift.
Low Doc Car Loans
Low doc car loans (low documentation car loans) are most often utilised by the self employed, they are yet another form of car loans for abn holders.
The usual process of applying for a business car loan will see lenders requesting to see your company financials and recent bank statements. They’ll be keen to check for a positive financial performance and enough cash flow to be able to afford the repayments. Generally, the more documents a borrower can supply, the easier it is to assess the application and the more likely they are to receive approval.
The good thing about low doc car loans is that they remove a number of the obstacles that self employed or new businesses face from traditional lenders who ask for a long track record of financial documents. In the absence of bank statements and financials, lenders providing low doc car loans may ask the borrower to sign a declaration stating how much they earn.
The downside to low doc car loans is that they will naturally attract a higher rate of interest than standard business car loans – there’s more risk to the lender when they have less information about the borrower.
Low doc car loans are most popular with tradies and freelancers but are accessible to all SMEs and self employed, you’ll just need a registered ABN, Australian citizenship/residency, and be able to provide as much information you can as to any assets you own and the income you/your business makes. Ultimately, the more documentation that can be provided, the more evidence there is that a loan can be repaid, thus reducing the risk to the lender. Thus, the more likely it is you’ll get approved, and the better your repayments will be.
Business Car Loan Rates
As always, financing rates can depend on a variety of factors. Business car loan interest rates will be based on your company’s risk profile, whether the loan is secured or unsecured and the age/profile of the vehicle it is you’re looking to buy.
The best business car loan rates will be for fixed interest rate chattel mortgages. You’ll find fixed interest rate car loans advertised from 3.8%, though with all fees considered (more on this later) they usually work out at least 5%. Rates will normally cap at around 10% for secured car loans, and could be up to 15% for unsecured loans. The interest rate on a car loan through your business should be cheaper than that for a personal loan as you can use the car as security for your purchase.
Fixed Interest Rate vs Variable Interest Rate
A chattel mortgage with a fixed interest rate locks the borrower into a set interest rate for the entire loan. This means that the interest rate will not change – you’ll be able to benefit from having a fixed amount to budget for but you won’t enjoy a reduction in rates if your lender is to cut them.
Chattel mortgages with variable rates can change at any time. If your lender decides to increase their interest rates, your repayments will increase, which could be costly. If they cut them, however, your repayments will fall.
With a chattel mortgage or commercial hire purchase you might find the lender offers the option of a balloon payment at the end of your agreement. This can make your repayments smaller but will involve paying off a pre-agreed portion of your loan at the end of the agreement.
Business Car Loan Rates & Additional Fees
Lenders can add a number of fees to your car loan which can have a real impact on how much it is you have to repay. Some of these can include:
Establishment fees (sometimes known as origination fees)
Account-keeping fees (could be monthly or annual)
Early exit fees
Different Australian lenders will generally charge different fees so it’s good to get comfortable with the type of fees your lender charges. At the very least, the best business auto loans should not have any early repayment fees.
Shift charges a one-off establishment fee of $499 and interest repayments are made monthly. There are no early repayment fees.
Truck sales in Australia are currently at record levels. As confirmed by the Truck Industry Council (TIC) light duty truck sales were up 10.2%, medium duty truck sales were up 11.9% and heavy duty truck sales were up a whopping 17.2% for the year until the end of July 2022 vs the same time period in 2021. Commercial truck loans cover all types of big vehicles, including semi truck financing, 18 wheeler financing and food truck financing.
Truck financing is a type of asset financing or business vehicle finance which is used specifically to purchase a truck. Like car loans for abn holders, there are various ways that truck financing can be structured. The most common form of truck finance is again a chattel mortgage which will see the truck you purchase being used to secure the loan. Loan limits can generally be higher to match the increased cost of purchasing a truck or fleet of trucks.
Non-bank specialist asset finance lenders will be able to offer higher truck financing limits than non-bank lenders that specialise in providing unsecured loans. Banks also offer truck financing and whilst interest rates will likely be lower, the approval process will be much slower.
Various lease arrangements including an operating lease, finance lease and commercial hire purchase are also available for truck finance.
Used Truck Financing
In addition to new truck financing, used truck financing is absolutely available throughout Australia and lenders are aware of how important the second-hand market is to SMEs. However, it should be noted that in addition to the credit profile of your business, the vehicle’s age could also affect your truck finance interest rate – it’s quite likely that used truck financing will incur higher interest rate than new truck financing.
Truck Loans Australia
Truck loans are available throughout Australia – whether it’s truck finance Perth, truck finance Sydney, truck finance Brisbane or truck finance Melbourne – there are plenty of options for SMEs. We wouldn’t necessarily recommend working with a provider just because they’re local – all of the truck finance lenders reviewed on our site and available on the Lend platform offer their services throughout Australia. When it comes to truck loans, it’s likely that working with a specialist equipment/asset finance lender is the best bet.
Truck Finance Brokers
Much like business loan brokers, there are various benefits to using a truck finance broker. A good truck finance broker will have a strong understanding of the truck financing market and should be able to use their expertise and the relationships they’ve built with various truck financing lenders in order to find borrowers the best fit for them. If you’ve ever used a mortgage broker, you’ll be familiar with how a truck finance broker can help – they can ‘handhold’ borrowers through the process, ensure all relevant documentation is submitted and hopefully find borrowers the best deal that was available to them at the time.
One of the biggest concerns with truck finance brokers is the extra fees involved and the risk that they’re looking to take more of a cut than they should. Thus, it’s important to work with a truck finance broker you know and you can trust. If you do not currently have a truck finance broker we can recommend Finstead business loan broker – having met with the Finstead team and their CEO, we were impressed with their industry know-how and level of transparency to any questions we had:
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Truck Finance Interest Rates
In addition to the risk profile of your business and the age of the truck, the weight and the type of the truck could also affect the interest rate you achieve on truck loans. A more niche requirement could also attract higher interest rates for truck loans as lenders may find it more difficult to sell the truck should they be required to recoup their losses if you default on the loan.
Truck finance interest rates can be either fixed or variable and all of the additional fees which may be applied to business car loans, such as establishment fees and early exit fees, could also apply to truck finance too.
Bad Credit Truck Loans
Bad credit commercial truck loans can be accessed but it’s very unlikely you’ll find a ‘no credit check truck loan’. If the truck is being used to secure the loan, lenders will be more likely to consider issuing truck finance with bad credit than they would on an unsecured basis. Truck loans with bad credit will naturally attract a higher rate of interest and will be trickier to qualify for. SMEs with a below average credit score can see our dedicated guide to bad credit business loans.
Truck Finance Calculator Australia
Use SmallBusinessLoanAustralia’s dedicated equipment finance calculator to gain an understanding of the loan repayments you’ll face if you take on truck finance. Input the cost of the truck, the deposit on the truck you’re required to pay, the term of term of the truck loan and the expected truck finance interest rate in order to see the total cost of the truck finance and how this will impact your cash flow on a day-to-day basis.
Truck Loan Repayment Calculator
Financing a truck? Use our dedicated calculator below.
Commercial Vehicle Loans – Points to Consider
There can be various business tax benefits for commercial vehicle finance – whether you’re taking a commercial vehicle loan or a finance lease. On a finance lease, the rental payments are generally tax deductible and on a commercial car loan, you should be able to claim tax credits on the GST on the purchase price of the car and receive tax breaks on the interest on the finance and depreciation of the asset are generally both tax deductible.
On the flip side, navigating tax issues can make choosing the right loan complicated and may require the help of a tax agent.
It can be difficult for new businesses to get approval for a business car loan. As a startup, the chances are you will not be eligible for business car finance and will need to go down the route of a personal car loan. Using a vehicle (particularly newer vehicles) as security in the loan can improve your chances of approval and bring your business car finance rates down.
Vehicle Ownership – Lease or Buy?
Not all options allow you to retain ownership of the vehicle, meaning your business could be paying for an asset that it does not own. This could save you money on servicing and maintenance fees, but ultimately you will not own the vehicle at the end of your lease.
Businesses who know they will do a lot of mileage on a company car may prefer a lease option – knowing that upon expiry of the existing lease they can take out a new lease for a new company car.
Which are the cheapest vehicles for leasing after securing a corporate car fleet finance in 2021?
Mitsubishi ASX ES – SUV (AUD 900 to 1200, depending on model)
Mitsubishi Outlander ES 2.4L 2WD – Large SUV (AUD 1200-1400)
Mitsubishi Triton GLX+ – Pickup Truck (AUD 1500 and up)
Vehicle Feel Financing / Car Fleet Financing
If your business is looking to purchase a number of vehicles then you may prefer to find a dealer or lender with a dedicated car fleet financing solution. The more cars you look to finance the better the deal you should get. Dedicated fleet management services can also help you to maintain a fleet within your business and provide valuable assistance to keep your company fleet on the road.
You can also choose to fund your fleet purchase with a single secured or unsecured business loan, though you should expect all ongoing and maintenance responsibilities to fall to you.
Vehicle Finance for Small Business
Whilst new businesses may struggle for business vehicle finance, there should be nothing stopping small businesses achieving a small business car loan. Single car finance is very common and providing you intend to use the vehicle for business purposes over 50% of the time, your business will be eligible to apply for a small business auto loan.
Self-employed and small businesses may also be eligible for low-doc small business car loans – meaning you aren’t required to supply as many financial documents to support your application. Though the less visibility you provide on your company financials, the more you can expect to pay in business car loan interest rates.
Business Car Loans, Truck Loans & Vehicle Fleet Financing – Final Say
The best commercial vehicle loan for your business will totally depend on what it is your business requires and how you decide which business car finance is right for you. The vehicle you’re looking for, how you intend to use the vehicle, and whether you intend to own the vehicle are all important elements to consider before applying for a commercial car loan or truck loan.
The best business car loan rates and truck finance interest rates are likely to be for fixed rate chattel mortgage products, though there are a wide variety of business financing options available to Australian SMEs, including low doc car loans and even bad credit commercial truck loans.
The best commercial vehicle loan for your business will totally depend on what it is your business requires and how you decide which business auto financing is right for you. The vehicle you’re looking for, how you intend to use the vehicle, and whether you intend to own the vehicle are all important elements to consider before applying for a commercial car loan. The best business car loan rates are likely to be for fixed rate chattel mortgage products, though there are a wide variety of business financing options available to Australian SMEs.