How to Buy a Car Under a Business Name
Before you head to the DMV to register your new commercial vehicle, you’ll need to establish your business credit, pick out a vehicle, and get a car loan.
Written by Rebecca Wardell
Edited by Georgina Grant
Table of Contents
- Step 1: Establish your business credit
- Step 2: Prepare to buy your business car
- Step 3: Get a car loan under your business name
- Step 4: Insure and register your vehicle
- FAQs
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To buy a car under a business name, you’ll need to establish enough credit to take out a company
car loan
, then register the vehicle under the name of the business.- A business credit score of 80 is typically a good enough score to get approved for financing from a dealership, bank, or credit union.
- Establishing enough credit for financing and business credibility typically takes at least two years.
- Once your business has purchased the new vehicle, you’ll need to choose between commercial or standard car insurance and register the car in your business’s name.
- A business credit score of 80 is typically a good enough score to get approved for financing from a dealership, bank, or credit union.
- Establishing enough credit for financing and business credibility typically takes at least two years.
- Once your business has purchased the new vehicle, you’ll need to choose between commercial or standardcar insuranceand register the car in your business’s name.
Step 1: Establish your business credit
Before you buy a car under a business name, you’ll need to build enough business credit history to be approved for an auto loan.
1. Get a tax ID number: You’ll need an Employer Identification Number (EIN) from the IRS to start establishing your business credit. You can also fill out an SS-4 form on the IRS website.
2. Create a credit profile: Create an account with a top-tier credit bureau. Once your profile is made, you can upload financial statements and other company information.
3. Establish trade lines: You’ll need at least three trade lines with large corporations (such as FedEx or Staples) to get get a credit score. Make sure to have your supplier send your company’s payment information to the credit bureau.
4. Build and maintain your business credit: Building enough credit for your business can take up to two years, which is why you should get started as early as possible.
To obtain a high credit score, you’ll need to do the following:
- Pay your bills early: While paying your bills on time is always a good idea, submitting your payments early will improve your credit score.
- Don’t use too much credit: Limit your company to 20-30% of accessible credit.
- Review your public records: You’ll want a spotless record to establish good credit. Things like going bankrupt or court penalties will all lower your score.
MORE: What credit score is needed to buy a car?
Step 2: Prepare to buy your business car
- Check your business credit score with several credit bureaus: Your credit score will range from 0-100. You should qualify for loans if your business score is over 80, but getting a car loan in your company name may be a better option if not.
- Find car dealerships that specialize in commercial sales: These divisions specialize in helping businesses buy vehicles and will make purchasing your vehicle easier.
- Pick out your commercial vehicle: Make sure the company vehicle meets your business’s needs (i.e. a minivan/truck for a delivery company, a car with good gas mileage for long trips, etc).
- Provide your financial paperwork: Before offering a loan, banks will want to see a variety of financial documents, such as business expenses and tax records.
Lenders will likely pull your personal credit score, as well, which is why you should check your credit report first. It typically costs between $37-$100 to check your credit score, but it’s worth it to know where you stand.
Proceed with caution: Purchasing a company car for your personal use is never a good idea and could draw unwanted attention from the IRS. Keep business vehicles for business use.
Step 3: Get a car loan under your business name
You have two financing options when your business is ready to purchase its new vehicle:
- Accept a loan from the dealership
No matter which option you choose, you’ll have to do the following:
- Provide a guarantee for the loan: If your business credit score isn’t high enough for a loan, you can alwayssign a guarantee. This means that if your business isn’t able to make the payments, you’ll be personally responsible for the amount.
- Make regular payments on your loan: Don’t forget to use your company bank accounts when making payments on your loan. If payments are made with a personal account, the IRS might launch an investigation into your business.
Step 4: Insure and register your vehicle
- Get car insurance: If you’ll be using the car primarily for business purposes,commercial auto insuranceis the best route to take. If you plan on using the car for business only part-time, it might be better to get a personal auto insurance policy.
- Register the car in your business name: Each state has different regulations forregistering your car—but it always must be done by the business owner. You might have to provide copies of your Articles of Organization to prove that your business is being run properly. Your registration fees will vary by state.
- Claim a tax deduction: Your business vehicle’s insurance policy may betax deductible, but it can be complicated to figure out how much. You might be able to claim a higher deduction depending on your business status—an LLC, corporation, or partnership.
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FAQs
Should I buy a car in my business name?
If you're looking for a company car and your employer permits it, there are certainly advantages. Buying a car under a company name might make paperwork a little more of a hassle, but as long as you look after your vehicle, there's no reason not to—as long as you have the go-ahead!
Can I get a car loan in my business name?
Yes, as long as you follow standard rules. You're going to need to provide some sort of guarantee and make regular payments—as you would for any loan. Check with banks or credit unions first, and then see what kind of offer a dealership can give you.
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