One of the easiest ways to acquire a car is to buy it through your business. You will get your business to pay for the vehicle and enjoy tax benefits. In addition to using the car for business purposes, you can use it for your daily commute. Your business meets all expenses on the vehicle, including insurance, repairs, and fuel, helping you avoid paying for them out of your pocket.
While the benefits of this kind of arrangement are apparent, you might have no idea how to buy a car through your business. The process is not very different from buying a personal car, except for a few distinctions. Buying a car through your business is a straightforward process involving three steps.
- Step 1: Establishing Your Business Credit
- Step 2: Buying a Car Through Your Business
- Step 3: Obtaining a Car Loan Using Your Business Name
- Step 4: Registering the Vehicle
- Benefits of Buying a Car Through Your Business
- Frequently Asked Questions (FAQ)
Step 1: Establishing Your Business Credit
Before buying a car through your business, you need to build and maintain a good credit rating to enable you to take out a loan. Like purchasing a personal vehicle, the car dealership and lender are interested in knowing your business credit rating. Therefore, if your business is relatively new, you should address that as the first thing. Here is how to build your business credit:
1) Get a Tax ID Number
Before building your business credit, you should apply for an Employer Identification Number (EIN) from the IRS. Your business should be located in the United States, and you should have a valid Taxpayer Identification Number. After completing the online application in a non-stop session, submit it and wait for validation. The IRS will send you an EIN confirmation with your EIN. Download and print the notice immediately.
2) Create a Credit Profile
Contact all the credit reference bureaus (Equifax, Experian, and TransUnion) and create an account with them. The bureau may require you to upload your business financial statements and other relevant information. Remember, the financial statements relate to the business checking account, which you’ve already been using for some time.
Before you can get a credit score from a credit reference bureau, you need more than trade lines with significant corporations like Staples or FedEx. That means using your credit card when buying goods or services from these companies. Essentially, your credit card company needs to file reports with credit reference bureaus to help you build your credit.
3) Work on Building and Maintaining Your Business Credit
It takes at least two to build enough credit for your business. That’s why you need to start working on it as soon as possible. You can get a high credit score for your business by doing the following:
- Paying Bills on Time: One of the surest ways to build an impressive credit score is to pay your bills on time. It helps your business make a reputation with vendors whose reports the credit reference bureaus use to raise your credit score.
- Avoid Using Too Much Credit: Your business will likely have the capacity to borrow lots of money from several sources. But that doesn’t mean that you should exhaust all the credit you can get. Utilizing 20% to 30% of the available credit can help you improve your credit score.
- Review Your Public Records: Businesses with spotless records usually significantly improve their credit rating. Therefore, avoid getting involved in issues like court penalties and declaration of bankruptcy. If you end up getting involved in any of these issues, it’ll take you a while before you can rebuild your credit.
Step 2: Buying a Car Through Your Business
Once you have built a good-enough credit for your business, you can go ahead and initiate the car buying process. However, you’ll need to start by doing the following things before heading out to the dealership:
1) Check Your Business Credit Score
Link with the three major credit reference bureaus and check your business credit score. You can purchase a one-time credit report or sign up for unlimited business credit monitoring services. For a one-time credit report, you’ll pay anything between $37-$100.
Business credit scores range from 0-100. Having a credit score above 80 means, you’ll likely qualify for any loan, including car financing. Therefore, don’t hesitate to get a car loan through your business. The dealer and lender would also want to see your credit report.
2) Find Dealership Specializing in Commercial Sales
Not every car dealership can sell you a company vehicle. Some dealerships specialize in selling cars to individuals, while others sell to businesses. Make sure you find a dealership with a division specialized in helping businesses. With that, it’ll be more straightforward to buy the vehicle you need. As part of assessing a suitable dealership, look for information such as:
- Phone numbers
- Working hours
- Financing options
- Available inventory
- Customer reviews
3) Pick a Good Vehicle
Choose a business vehicle that meets your needs. First, consider what type of car is best for you. Consider how you intend to use the car, where you’ll drive it, the mpg rating, and the passenger capacity. The vehicle should also meet your business needs. If you need a car for transportation, choose one with excellent gas mileage. On the other hand, a delivery business would need a pickup truck or mini-van.
When buying a vehicle through your business, consider how you can use it to brand your business. From the outset, choose a car that perfectly projects your business image. You may want to impress your high-end customers by purchasing a more expensive vehicle. Essentially, the car should represent your business without being loud about it.
Since you’re getting a car through your business, it would help if it has additional tech features like GPS, telematics, and so on. GPS can help you when traveling to new places for business. On the other hand, Telematics is an app that reduces distracted driving, tracks vehicle location, and helps you separate personal driving. Plus, you can get up to a 10% discount on insurance after enrolling in the telematics program.
If you want to know how to buy a car through your business, you should emphasize fuel economy. That’s especially important if your business involves making long trips to deliver goods or visit clients. You’ll want to get a vehicle with a lower fuel economy to reduce your business expenses. Besides, having a fuel-efficient car could result in tax benefits.
4) Complete Paperwork for Financing
Before granting you financing for a business car, the dealer and lender would want you to fill out a loan application form and attach vital documents. Essentially, it would help if you showed that you own the business and can repay the car loan. The following are the documents you’ll need to file:
- Bank statements
- Business licenses
- Cashflow statements
- Driver’s license
- Employer identification number (EIN)
- LLC documents
- Partnership agreements
- Profit/loss statements
While assessing your loan applications, lenders may also pull your business and personal credit score. So, be sure to check your credit report before approaching a car dealership.
Step 3: Obtaining a Car Loan Using Your Business Name
You can either do it through the car dealership via the application you did above or approach a conventional lender such as a bank or credit union when getting a car loan. Here are essential considerations you should make:
- Guarantee the Loan: With a good credit score, you’ll get the car financing you need. However, anything less than perfect can make a lender reject your application without hesitation. In that case, you may have to sign a guarantee. That essentially means you accept to repay your business loan fails to do it.
- Repay the Loan Regularly: Now that you’ve secured the loan and bought a car through your business, the best you can do is repay it. Use the business bank accounts when repaying the loan. The IRS will flag the transactions and investigate your business for tax fraud if you use your account.
Step 4: Registering the Vehicle
Once you have obtained a car, you should register it with the DMV. The paperwork and fees you need to write a business vehicle will likely vary based on your home state. However, it would help if you were prepared to provide proof of insurance regardless of where you reside. Here is the procedure you should follow to register your vehicle successfully:
1) Get Car Insurance
Get commercial auto insurance if you intend to use the vehicle for exclusively business purposes. However, secure personal auto insurance if you’ll use the car for business and personal purposes. Obtain your insurance coverage from a licensed broker or directly from the insurance company.
2) Register the Vehicle
Now that you bought the vehicle through your business, you should register it under your company name. The DMV may require you to fill a form, submit certain documents, and pay a fee. Even though the documentation varies from one state to the other, the following are the documents you’ll likely have to provide:
- Title application form
- Vehicle certificate of origin or title
- Damage disclosure statement
- Odometer disclosure statement
- Proof of insurance
- Highway-use tax
- Certification of title fee (varies depending on the state)
- Registration fee (varies depending on the state)
- County fee (in a few places)
3) Claim a Tax-Deductible
One of the benefits of buying a car through your business is the tax-deductible one could get. The amount of tax-deductible varies, depending on whether your business is a partnership, corporation, or LLC. The following are some of the most common tax deductibles on a company car:
- Capital allowance, which is relief on the cost of the vehicle
- Insurance relief for insurance coverage on the car
- Tax relief for any tax paid on the vehicle
Tax deductibles make it possible for a business to pay less corporation tax at the end of the financial year. Therefore, they aren’t benefits you can enjoy immediately after registering the vehicle to the company.
Benefits of Buying a Car Through Your Business
Buying a car through your business comes with many benefits to you, especially if you also intend to use the vehicle for personal purposes. The following are the advantages of using your business name to buy a car.
- The business takes over repayments for far financing
- You can claim a tax reduction using the car as a business asset
- The company pays all running costs – gas, maintenance, repairs, and insurance
- Your company can file a claim for depreciation
Frequently Asked Questions (FAQ)
How can I buy a car through my business?
Why should I buy a car through my business?
Can a small business owner buy a car?
Can buying a car be tax-deductible?
Now that you know how to buy a car through your business? Even though elaborate, the process is simple to follow. After ensuring that your company has a good credit rating, you should go straight to the dealership and look for a suitable vehicle. You should then secure financing, register the car, and drive it for business and personal purposes. Getting a car through your company has several benefits, including reducing annual corporation tax. Therefore, it is a perfect way to get the vehicle you need.