Business auto loans — also called commercial auto loans — are available from a variety of sources. Most banks and credit unions offer some form of commercial lending and are active in the small business lending market. For companies with short histories or with owners whose personal credit is less than good, an alternative lender may be the answer. These loans are, as you might guess, more expensive than the ones offered by conventional lenders like banks and credit unions.
Business auto loans function similarly to personal auto loans in terms of interest rates, payment periods, and securing the loans with the vehicles so you don’t need to pledge other assets. What is different is that it is not “you” who is applying, it’s your business.
Once the loan application is submitted, the lender will assess the business’s credit. As with any loan, whether it is approved and at what interest rate and terms depends on the perceived risk that the borrower will default on the loan.
Furthermore, the lender may ask you to make a personal guarantee for any difference if your company defaults and the loan cannot be fully paid off by selling the vehicle. This can affect your personal financial situation since your personal guarantee puts your personal assets (house, cars, etc.) at risk if the company defaults. This assumes that your personal credit is good or excellent.
If your personal credit score is not at least in the “good” range, and if you cannot get the loan without the personal guarantee, you should probably hold off on borrowing until both you and your company have better credit scores.