Business Vehicle Finance – Business Car Loans & Alternative Financing Options
For many businesses, having access to a vehicle or fleet of vehicles, is essential 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 available to your business – saving as much as possible on the way.
Whether it’s a small business car loan 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. We break all of them down here.
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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 can’t be done off balance sheet – the vehicle acts as security for the loan – but some businesses may be eligible for tax deductions.
Commercial hire purchase (CHP)
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 employees 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.
Alternative Business Car Finance Options
Small Business Loan
Some lenders, such as GetCapital, 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 – $300,000, 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 GetCapital.
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 & Addition 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:
- Application fees
- Establishment fees (sometimes known as origination fees)
- Account-keeping fees (could be monthly or annual)
- Early exit fees
- Redraw 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.
GetCapital charges a one-off establishment fee of $499 and interest repayments are made monthly. There are no early repayment fees.
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?
Based on carpart.com.au’s blog these are your best, cheapest, options:
- Kia Picanto S (AUD 600-700)
- Hyundai i30 Go 2.0 GDi (AUD 800-900)
- 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 Loan & 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 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.