How to buy a car under your business’ name

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Ask a Lender
October 19, 2017 | Updated October 20, 2017


Key Points

6 steps to purchasing a car through your business

  1. Improve your business and personal credit
  2. Gather necessary documents
  3. Decide on a down payment amount
  4. Get an insurance quote
  5. Compare lenders and get preapproved
  6. Research dealers and avoid private-party sales 

For many small business owners, the line between personal and company business is often blurred. If you are increasingly using your personal car for business or find that you need a specialized vehicle for your company, consider buying a vehicle in your business’ name. Compared to personal automobiles, a company car or other commercial vehicle faces differences in financing, tax accounting and insurance requirements.

Can I buy a business car?

Not every small business can purchase a company vehicle. If you are a sole proprietor, you are not legally distinct from your business and are thus personally liable for all of your company debt. As such, it is not possible for a sole proprietorship to purchase a company vehicle. You still can make tax deductions for business activities undertaken in a personal vehicle. Consult a tax professional for details.

If your business is structured as a limited liability corporation (LLC), S corporation or C corporation, you can buy a vehicle in the business’ name. Although incorporation protects your personal assets in the event that your business is sued or goes under, lenders typically will require that you personally guaranty any commercial vehicle loans.

Pros and cons

If your company reimburses employees for business-related driving in their personal vehicles, you may be able to save money by owning a company car that is designated for business purposes. If your business requires a specialized vehicle that you intend to use long-term, ownership can be much more cost-effective than a leasing arrangement. You have the added benefit of being able to brand or modify the vehicle as you like.

Ownership also has tax benefits, allowing you to deduct expenses for fuel, maintenance, tolls and licensing, as well as vehicle depreciation. In some cases, the entire purchase price of a large or specialized vehicle is eligible for deduction. Deductions can be scheduled based on annual vehicle expenses or a standard mileage rate. Consult your accountant or tax adviser to determine which strategy is best for your business, particularly if you use the vehicle for both personal and business activities.

These changes in tax reporting introduce more paperwork, however, for your accounting team as well as anyone who will be driving the vehicle. The upfront costs of ownership are higher as well. Not only will you need to make a down payment for the vehicle, you likely will need commercial vehicle insurance coverage, which is considerably more expensive that standard car insurance.

Financing a business car

Purchasing — and financing — a vehicle in your company’s name can be more complex than a standard auto loan. Here are six steps to guide you.

  1. Improve your business and personal credit. For small businesses with little established credit, lenders look to your personal credit. Even if you have strong business credit, many lenders still require that you personally guaranty a commercial vehicle loan.
  2. Gather necessary documents. At minimum, you will need to show your management experience, time in business, business financials, repayment strategy and, in many cases, your personal financials. Provide a written corporate resolution proving that all the business owners have authorized the purchase, as well as your employer identification number (EIN).
  3. Decide on a down payment amount. If you are a new business, have poor credit or aren’t able to meet some of the lender’s extensive qualification requirements, making a larger down payment could help you qualify.
  4. Get an insurance quote. Lenders will require that you carry full-coverage insurance over the duration of the loan, either in the form of standard auto insurance or commercial vehicle insurance. Consult your lender and insurance provider to see which type of policy you will require and obtain a quote.
  5. Compare lenders and get preapproved. Preapproval gives you an idea of the loan amounts and conditions for which you are eligible. You can use this to negotiate at the dealership, which is sure to offer you financing options as well.
  6. Research dealers and avoid private-party sales. Many lenders will not finance a vehicle purchased from a private party, given that little is known about the vehicle’s history and condition. Buying from a dealership with experience in commercial vehicle sales can help the process go more smoothly.

Remember that all vehicle purchase payments, registration, insurance and other costs should be paid from your official business accounts.

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