Whether you need a company car, work van, ute, motorcycle, or you’re looking to add to your entire fleet, there are a number of business vehicle finance solutions available.
Finding the right commercial car finance option, and a lender that can offer competitive terms, gets a lot easier with a specialist mortgage broker on your side.
How much can I borrow?
You can borrow up to 100% of the vehicle value and up to 50% for business cash flow purposes with select lenders.
Generally speaking, you need to meet the following criteria:
- Borrowing limits subject to a valuation of the vehicle.
- There is generally a 4.5-5 tonne weight limit (some lenders also offer truck and trailer finance depending on your needs).
- Standard cars, motorcycles, vans and utes are preferred.
- Lenders will consider new vehicles or collectibles.
- Your financials must show evidence of a profitable business (low doc available).
- You need at least 3-5 years business experience.
- Some lenders will accept minor defaults (typically up to $7,000) but black marks must be clear from your credit file.
- A director’s guarantee, and a fixed and floating charge (Bill of Sale) over the vehicle will be used as security.
What loan features are available?
- 5-7 year loan terms.
- Some lenders offer negative equity rollover when you trade in your vehicle.
- Fixed rate principal and interest (P&I) payments (interest only not available).
- Business Line of Credit, overdraft facilities and offset accounts are available.
- Balloon payments available (typically up to 30% of the vehicle value) to reduce your repayments.
Call us on 1300 889 743 or fill in our online enquiry form to discover if you qualify for business vehicle finance.
Which business car finance solution is right for you?
- Finance lease: The lender purchases the motor vehicle and leases it to you for an agreed term, after which ownership switches to you and you have the option to either trade in or refinance your lease.
- Commercial hire purchase: This is also called asset purchase and is similar to a finance lease except your business immediately owns the vehicle once the final payment is made.
- Novated lease: A novated lease gives your employees an option to lease a vehicle of their choice and retain ultimate responsibility for it while you make the lease payments by making deductions on their pre-tax income.
- Chattel mortgage: The equipment is owned by the business but will be used as the primary security against a mortgage over the vehicle.
- Sale and hireback / sale and leaseback: Generally, this type of finance is only available with vehicles purchased in the last three months.
As you can see, some of these options give you the opportunity to own the vehicle at the end of the loan term while others do not.
For something like a delivery van, you potentially want to hold onto the vehicle for the long-term.
This is compared to a business car that you may want to trade in on a more regular basis, especially because you’re likely to get more back than a “workhorse” vehicle.
Improving your chances at approval
Approval for vehicle and equipment finance, like other business loans, will be considered on a case by case basis.
A mortgage broker that specialises in asset finance can assess your needs and find a lender that can offer you favourable terms.
However, the following factors will increase your eligibility for business vehicle finance.
Small to medium businesses have a high rate of failure, particularly in their first 2 years of operation.
Lenders will consider business owners with at least 3-5 years experience in the same industry more favourably than an applicant who has just started their business.
There are exceptions to this rule depending on your previous industry experience.
For example, if you only recently started an electrical business and you need to purchase a work van, some lenders will still consider your situation if you have a few years experience as a leading hand or team leader.
That’s because there is a market need for electricians.
Work references will help strengthen your case. In many ways, it’s good to think about applying for vehicle or fleet finance as if you were going for a job interview.
Evidence of profitability
Banks generally want to see your last two years business financials including:
- Screenshots of your last 2 years ATO tax portals.
- Business Activity Statements (BAS).
- Your last 2 years balance sheets showing profit and loss as well as assets and liabilities.
In some cases, business turnover needs to be 1.5 to 2 times the proposed interest expenses on the vehicle finance. This is known as the ‘serviceability ratio’.
However, there are low doc business vehicle finance options available, which can be helpful for businesses with less than 2 years ABN.
Lenders will instead rely on alternative or alt docs like your interim financials for the most recent financial year supported by an accountant’s letter.
A 30% deposit deposit is typically required if your business is less than a year old.
Business plan and SWOT analysis
If you’re a relatively new business, and depending on how many vehicles or assets you want to purchase, the lender may ask you to provide a detailed business plan.
The business plan should detail the expected return on investment from purchasing the vehicles.
The bank will then run a SWOT analysis, an acronym standing for strengths, weaknesses, opportunities and threats.
We recommend that our clients sit down with their accountant to discuss their business plans to determine the commercial and tax benefits of buying a vehicle.
Will the lender accept your commercial vehicle?
Most lenders will only accept brand new vehicles, although demo or demonstrator vehicles can be considered.
To prove this you will need to provide the lender with a sales contract from the dealer or wholesaler. Don’t sign the sales contract until you have received an indicative approval from the lender subject to a valuation.
We can help you qualify for finance for a business car. Simply call us on 1300 889 743 or complete our online assessment form and tell us about the asset you want to purchase.
How are vehicles valued?
The valuer will consider whether the vehicle is in an “average” or “good” condition as well as:
- The kilometres on the odometer.
- Any accessories that have been fitted.
- Supply and demand in the local area.
- Any current or historical damage.
Do you want to buy a classic car?
Some business owners like the idea of a classic car to stir up their branding and get noticed.
Alternatively, you may want a collectible vehicle to use in your joyride or chauffeur business.
Lenders will consider these cars but they require a specialised valuation.
Truth be told, the methods that valuers use can be a bit of a mixed bag.
For a vehicle to be considered a “classic”, it needs to be at least 15 years or older in some states and up to 30 years old in others.
There is also a world of difference between a veteran, vintage, post vintage, and a classic vehicle.
What about boats and planes?
Most lenders will not consider these vehicle types because they are regarded as high risk.
Boats and aircraft tend to have a smaller market of buyers so they are more difficult to sell in the event that you default on your loan.
If you can provide solid business financials and a business plan that explains the need for the plane or boat, we may be able to build a case for you.
Can I finance the purchase of a ride-sharing vehicle?
An increasing number of everyday Australians are ditching the 9-5 work life to become a ride-sharing driver through providers like Uber, Lyft and Hitch-a-ride.
However, getting approved for commercial car finance can be difficult if you’re only use the car on occasion to pick up passengers.
Generally speaking, you need to be using the car for business purposes 50% or more of the time.
You also need to have a registered ABN and to have been operating for at least 1-2 years.
In this case, hire purchase or chattel mortgage finance options may be acceptable solutions for you.
It’s best to call us on 1300 889 743 or fill in our online enquiry form to discover if you qualify.
Will banks accept vehicles purchased in a private sale?
Most lenders will only accept new vehicles but for workhorses like vans and small trucks (typically less than 5 tonnes), some lenders will accept private sale vehicles if you can provide one of the following:
- Retail Vehicle Inspection Report (VIR).
- Roadworthy report.
- Business Partner (BP) Vehicle Identification.
What is negative equity?
Negative equity is when your business vehicle is either valued or sold for less than the loan amount owing on the loan.
For example, let’s say you borrowed 100% to purchase a work van valued at $20,000 for your florist business, plus another 30% against the vehicle value as a business line of credit.
This brings your total business vehicle finance to $26,000.
After 5 years, you still owe $15,000 in finance but you’re looking to upgrade to a newer model.
You go to the dealer and they offer you $12,000 to purchase the van because of the condition.
Instead of paying down the $3,000 difference upfront, some lenders will allow you roll over some of this negative equity into your new business car loan when you refinance.
Can I claim motor vehicle expenses?
Yes, there are tax benefits to getting commercial car or equipment finance as opposed to a standard car loan, or using equity in your residential home loan.
It’s best to speak with your accountant first but, generally speaking, you can claim such expenses as:
- Fuel and oil.
- Repairs and servicing.
- Interest on your motor vehicle finance.
- Lease payments.
Speak with a business vehicle finance specialist today
Simply call 1300 889 743 or fill in our online enquiry form to get started today.