Buying a vehicle for a small business is an exciting moment for any business owner, and it comes with a few advantages.
You can use it as your work commute vehicle, take it on deliveries, or load it up for a work trip. It is tax-deductible and can even function as moving advertising with a well-designed vehicle wrap. However, there are a few important considerations to take into account before you take the leap and buy. Think about what works best for your company as you go through this guide.
Work on Your Business Credit History
If you do not have the cash on hand to purchase a vehicle in full, your business credit score will play a role in financing. If you have a new business, you may need to consider taking some time to build up a strong business credit score before you purchase.
You need a tax ID number to officially register your business with the IRS and begin working on your credit. Then you can create an account with a credit bureau and establish trade lines. Now you are ready to start building your business credit. Some easy ways to do so include:
- Pay bills on time. Late payments negatively affect your score, and early payments are even better than paying on time.
- Limit your credit use. Try to keep your credit use below 30% of your credit availability.
- Avoid penalties and bankruptcy. Keep your public records clean so that you look trustworthy to lenders.
The better your business credit score is, the better your financing options.
Decide Between New or Used Vehicles
Whether you decide to buy a new or used vehicle, there are advantages and disadvantages for both. New vehicles come with the latest technology and have that modern look that you want to represent your business. Buying new also means that you have a warranty, which saves on maintenance and repair costs in the beginning. Additionally, most automotive companies are releasing new vehicles with better fuel economy and lower carbon dioxide emissions. You may also have better financing options on a newer vehicle. However, new vehicles also depreciate rapidly and are significantly more expensive. You pay more in taxes and insurance premiums, and if you need specialized vehicles, the cost could be astronomical.
Buying a used vehicle will save money significantly. The original owner already suffered the biggest depreciation, and the insurance cost is usually lower. When budget is the top priority, buying used is a better option. Of course, there are downsides as well. Used vehicles are not always as reliable, depending on the year it was made and their history, and you will probably need to compromise on the aesthetics and technology. A 10-year-old model may not even have the capability for feature upgrades. Therefore, you have to decide what best suits your business needs before deciding between a new or used purchase.
Consider the Benefits of Business Vehicle Leasing
In certain situations, business vehicle leasing makes more sense for your company. Businesses that need several vehicles often choose to lease rather than buy. If you have a fleet of delivery trucks with high turnover and very little wear and tear, you can lease and replace them every five years. You save money on maintenance and repair costs and keep your fleet outfitted with the most reliable technology, an important factor for a business. Make sure you read all the fine print before you sign.
Tips To Consider When Getting a Vehicle for a Small Business
Now that you know whether you want a new or used car and have decided whether you should lease or buy it, you can start thinking more specifically about your new small business vehicle. Consider these important questions:
- How often will you use the vehicle? Is it just for you to commute to work or use it for business trips to avoid putting miles on your personal vehicle? Will you use it more often than you would a delivery vehicle?
- What type of vehicle will most benefit your company? Do you need a car, truck, van, or something more significant? Even if you intend to use it for your commute, you may need space to bring employees on company outings or carry equipment. If you need it for deliveries, the volume of your deliveries might call for a commercial vehicle.
- Do you want to promote your business with it? If you spend a great deal of time on the road, a branded company vehicle is excellent advertising. Depending on how much time you spend on the road, you could make thousands of impressions every day.
- Can you add tech features that will benefit business operations? GPS and fleet management software may benefit your business, or you might want to add some cosmetic features to slow depreciation if you choose to buy rather than lease.
- How important is fuel usage? If you intend to use the vehicle regularly, consider prioritizing fuel mileage. Would you benefit from an electric car? Electric cars come with additional tax benefits and may save money over time, regardless of the higher ticket price.
- What type of insurance will you need, and what is the cost? Research the insurance providers before you settle on one. Businesses have different insurance needs compared to personal coverage. If you intend to allow multiple drivers, you might need additional coverage. Commercial vehicles are insured differently, and the location of your business will affect your premium rates.
With these questions answered, you should be ready to seek financing for your business. If you prefer to keep funding quick and simple, you may look into online lenders. Shop around for quotes. Conduct a thorough cost-benefit analysis and consider the maintenance and fuel costs along with your existing company expenses.
For more information on how to purchase a vehicle for your business, contact the financing experts at Platform Funding.
Sources:
- https://forcebymojio.com/blog/the-best-way-for-small-businesses-to-buy-vehicles/
- https://getjerry.com/car-insurance/how-to-buy-car-under-business-name
- https://blog.nationwide.com/buying-a-business-car-tips/