The right vehicles are essential to the functioning of many businesses, offering the mobility and portability you need to operate successfully. However, when it comes to finding the funds to purchase your next business vehicle, there is a wide range of vehicle finance options you can choose from. This includes a range of leasing and loan options. Each option has its own benefits and drawbacks, so read on to discover which one may be right for you.
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SharpShooter Funding offers loans up to $300,000 for small business owners who have been business for at least 100 days and can show a minimum of $5,000 in monthly deposits ($60,000/year).
Business vehicle financing refers to several different borrowing options that can help cover the cost of a new car, truck, van or other vehicle for business use. Your options are similar to auto loans, but you might not have the same selection of lenders and could have to meet different application requirements.
Which type of financing works best for your business depends on a range of factors including its financial situation, taxation needs and whether you’ll use the vehicle solely used for business purposes or a mix of business and personal use.
Anna, a resident of Ontario, wants to buy a food truck and start her own business. She finds a 16′ brand new truck with a fully loaded kitchen for $39,000.00 + 13% HST ($44,070.00 total). Along with her other startup costs – including food, beverages, supplies, permits and licenses, advertising, uniforms and other expenses – she figures she’ll need about $55,000.00 to get up and running.
Anna applies for a business loan from an online lender. Thanks to her solid personal credit score of 810, she is approved for financing with competitive terms. Along with the cost of her loan, Anna also pays around $300.00 to register her truck with the province of Ontario – this includes the cost of a license plate, sticker and vehicle permit.
Cost of food truck + other startup costs
Business loan (term loan)
Interest rate (APR)
4.00% origination fee ($2,200.00)
Total loan cost
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
How does business vehicle financing work?
Business vehicle financing works a lot like other types of auto loans. If your business doesn’t want to pay for a vehicle upfront, financing kicks in to break up the cost into more manageable payments that you pay over a period of time plus interest or fees.
How commercial vehicle finance works depends on which type of financing you go for. Some options allow you to borrow a vehicle from a dealer without ever owning it. Other options allow you to purchase the vehicle in full.
What are my business vehicle financing options?
Your business has a number of vehicle financing options to choose from, though it’s rare to find a lender that offers all at once. Use the following list to help you decide which is best for your business and start your search from there.
Business auto loan
A business auto loan allows you to buy the vehicle under your name or your business’s name and then pay the lender a fixed monthly repayment. If you take out a loan in your business’s name, your lender might require a personal guarantee from all business owners if your business’s finances aren’t strong enough.
You can get business auto loans from online lenders, banks, credit unions and even directly from the manufacturer or dealership. These loans tend to require a down payment of around 10% to 20%.
This option allows your business to use of a commercial vehicle without ever owning it. The lender purchases the vehicle on your behalf, and then leases it back to you. You then make monthly lease payments until the term of the lease is up.
Once your lease is over, you typically have the options to pay off the remaining value on the lease and take full ownership of the vehicle, trade the vehicle for a new one in or look to refinance the lease.
Commercial line of credit
Need financing for more than one vehicle? Some lenders allow you to use a business line of credit that you can use to buy or lease multiple cars, trucks, vans and more to help you build your fleet.
You’ll only have to get approved once so you won’t have to spend all that time waiting to get approved for each individual vehicle. However, your business will likely need to have strong credit and a consistently high revenue to qualify.
Having trouble qualifying for traditional vehicle financing? Your business might be eligible for a CSBFP loan to help cover the costs of getting a business vehicle. These loans can be applied for through a chartered bank, credit union or a caisse populaire and are at least 75% backed by the Government of Canada. Your business must make under $10 million in revenue annually to be eligible for this program.
Heavy-duty vehicle financing
These are designed specifically for large trucks and other heavy-duty vehicles, which you might have difficulty financing with your typical car loan.
Like with the commercial line of credit, your business can use this option to build your fleet but typically requires your business to have been around for at least 2 years, have strong credit and consistently high revenue.
Specialty vehicle financing
This option is best for businesses looking to modify a vehicle or buy specialty equipment — what you can’t typically get at an auto dealership. Specialty financing can help your business buy equipment to make better use of vehicles your business already owns, like a wheelchair lift, crane or towing equipment. Some lenders allow you to combine this option with a lease or auto loan.
A personal loan gives you access to funds you can use for a variety of purposes, ranging from improving your home to buying a car. This option can be great if you plan to use the car for personal and business use. Treat it as a last resort, however: Personal loans tend to come higher interest rates and fees than some other business vehicle financing options.
How can I find the best vehicle financing for my business?
Terms. The length of the term of your vehicle finance arrangement will influence how much money you have to pay in order to gain ownership of a commercial vehicle. Many finance options allow terms of between 2-7 years, so compare the terms available and find an option that suits your budget and needs.
Interest rate. What interest rate will you be charged under your vehicle finance arrangement? The higher the rate, the more you’ll have to pay in interest charges. Will the rate be fixed or variable, offering either the security of knowing what your repayments will be or the chance to take advantage of possible falling rates?
Repayment options. Look for a vehicle finance option that allows you to tailor repayments to suit your budget. Some offer fixed monthly repayments which provide security, while others may allow you to choose a more flexible repayment schedule.
Tax requirements. Claiming the expense of buying a vehicle as a tax deduction varies greatly depending on which vehicle finance option you choose. You may also be able to include depreciation deductions depending on the option you choose. See below for more information.
Fees and charges. As with any financial product, it pays to familiarize yourself with any fees and charges attached to a vehicle finance option. They may not seem like much at first, but these expenses can add up to a lot of money in the long run.
Buying vs. leasing a vehicle for your business
Buying a vehicle means you’ll own it once you’ve paid for it in full. Leasing means you can use it for a fixed amount of time without getting all of the benefits and drawbacks of ownership. Here’s how the two options stack up.
Buying a vehicle
Leasing a vehicle
Typical initial cost
Down payment of around 10% to 20% of the cost of the vehicle.
Security deposit of the first month’s payment. (You may be able to make a larger down payment to reduce your monthly payments.)
Your business owns the car as soon as the paperwork is signed.
Your business can deduct part of what was paid to buy and use the vehicle. Learn more below.
Your business can deduct part of what was paid to lease and use the vehicle. Learn more below.
Your business is responsible for maintenance costs.
You might be charged a fee if your car needs excessive maintenance once you’re done with it.
How to claim business vehicle expenses on your taxes
If you own or lease a business vehicle, the CRA will allow you to lower your taxes by claiming 2 types of expenses: vehicle depreciation and the cost of using and maintaining your vehicle. Vehicle depreciation is the decrease in your vehicle’s value over time and is claimed on your business taxes as “capital cost allowance” or CCA. Other costs associated with using and maintaining your vehicle – such as gas, repairs, mileage, insurance, car loan interest fees and licensing/registration fees – can be claimed as “motor vehicle expenses.”
You can’t claim these amounts fully. Only a certain portion of your vehicle’s depreciation and expenses are claimable, except for parking fees and supplementary car insurance, which can be 100% claimed as motor vehicle expenses.
The CRA has very specific rules for calculating the amount of your claims. These are explained below:
Step 1. Find the class your vehicle falls into so you can determine the percentage of its value that can be claimed. The CRA has created a list of roughly 20 classes into which various types of property fall for the purpose of calculating CCA. Each class has a percentage assigned to it, which indicates the proportion of a property’s value that you can claim on your business taxes.
Vehicles that cost $30,000 or less (before taxes) belong to Class 10, and vehicles that cost more than $30,000 (before taxes) belong to Class 10.1. Currently, you can claim up to 30% of the value of property in Classes 10 and 10.1. (This percentage could change in the future, so be sure to check the CRA’s website for the most current rules.)
Step 2. Calculate the capital cost of your vehicle. Add the base cost of your vehicle (its purchase price) to the GST/HST you paid. This is the capital cost of your vehicle. No more than $30,000 of the base cost of a vehicle can be applied towards the calculation of its capital cost. This means that, if your vehicle costs $31,000, $40,000 or even $100,000, you can still only count $30,000 towards its capital cost. (See Step 2 of “Calculating motor vehicle expenses” to find out how to deduct lease payments from your business taxes.)
Step 3. Multiple the capital cost of your vehicle by the percentage you can claim (note the “half year rule”). Different rules apply for calculating CCA based on whether you bought the vehicle the same year for which you’re filing a tax return or whether you’ve owned it for longer. If you bought a vehicle and made a CCA claim on it that same year, then the “half-year rule” would require that you calculate CCA based on half the capital cost of the vehicle instead of the full amount.
In subsequent years, CCA would be calculated based on the full capital cost of the vehicle minus any previously-claimed CCA amounts.
Rina bought a $33,000 van for her local delivery business. When completing her business’s tax return for that year, she calculated the capital cost allowance on her van as follows:
Step 1. Because the pre-tax cost of her van is over $30,000, Rina determines that her vehicle fits into Class 10.1. Class 10.1 property is 30% claimable, so Rina notes that this is the percentage of her van’s capital cost that she can put towards reducing her business taxes.
Step 2. According to current CRA rules, the maximum allowable cost of vehicles in Class 10.1 is $30,000, so Rina uses this amount to calculate the overall capital cost of her van. She adds the GST/HST she paid on the actual purchase price of her van – $4,950 – to the base cost of $30,000 and gets $34,950. This is the capital cost of her business van.
But wait. Rina realizes that she’s claiming CCA for the year her that van was bought. As per the “half-year rule,” she divides $34,950 in half and gets $17,475. This is the capital cost she can actually put towards calculating her CCA.
Step 3. The claimable percentage of Class 10.1 property is 30%, so Rina multiplies $17,475 by 0.30 and gets $5,242.50. This is her capital cost allowance for that year, which she can deduct from the taxes her business owes.
Note: Rina can ignore the “half-year rule” in all subsequent tax years. This means that, in the future, she can use the full capital cost of her vehicle (minus the CCA she already claimed) towards calculating CCA on her van. So next year, Rina’s CCA will be 30% of the total capital cost of her vehicle minus $5,242.50.
Step 1. Calculate your mileage. Keep a record of the total number of kilometres you drove that year and how many of those kilometres were driven for business-related reasons. Divide the number driven for business reasons by the number driven overall. The result should be equal to, or less than, 1 and will represent your mileage when calculating your claimable motor vehicle expenses.
Step 2. Add up your other vehicle expenses (including any applicable lease payments). Add up all of your vehicle-related expenses, but leave out any expenses related to your personal use of the vehicle. So, if you own a vehicle that you used for both business and personal reasons, you’re only allowed to factor in expenses incurred while using the vehicle to earn income.
If you’re leasing a vehicle, then the proportion of lease payments you can claim must match the proportion of your yearly vehicle use that was for business. For example, if business activity accounts for 60% of your vehicle use in a given year, then you can claim 60% of your lease payments towards motor vehicle expenses for your business. Certain restrictions apply, so see the CRA website for more details.
Step 3. Calculate your total tax deduction (plus parking fees & the cost of supplementary business insurance). Multiply the mileage you calculated in step 1 with the total amount of your other vehicle expenses. Add in the full cost of any parking fees and supplementary business insurance you paid for that year. The resulting amount is the total you can claim for business-related motor vehicle expenses for that tax year.
Remember all costs used to calculate your motor vehicle expenses deduction must be directly connected to earning income. Note that parking tickets and other such penalties cannot be used in this calculation – unsurprisingly, you can’t claim fines earned by breaking the law.
Michael is an independent business consultant who uses his car regularly to travel to and from conferences and meetings with clients. When not working, he uses the same car to run errands, visit friends and go on the occasional road trip for fun.
Knowing he can claim motor vehicle expenses on his tax return, Michael has been keeping track of his mileage all year, including how much he’s driven for specifically for work. He’s also been keeping records of other vehicle expenses in a separate ledger.
Step 1. In total, Michael’s racked up 37,000 km this past year. He calculates that 24,000 km of that was for work-related reasons. To determine his mileage, Michael divides 24,000 by 37,000 and gets 0.6486.
Step 2. Michael spent $7,400 on using, repairing and maintaining his vehicle this past year. His expenses were as follows:
$700 on repairs
$850 for new tires
$975 on interest fees for his car loan
$2,100 on insurance premiums
$2,400 on gas
$300 on oil changes
$75 to renew his license
Step 3. Michael multiplies 0.6486 by $7,400 and gets $4,799.64. This is the amount he can claim on his tax return for business-related motor vehicle expenses.
Are there any risks involved with business vehicle financing?
As with any financing option, one of the most important thing to avoid is getting in over your head. Having debts pile up on top of one another can hurt your business, so make sure you can afford a vehicle finance arrangement before you sign up to it.
Another common pitfall is simply not understanding the range of vehicle finance options available and selecting one that doesn’t suit your business’ needs and budget. Enlisting the services of an accountant can help.
Reach out to one of the top 3 business credit bureaus — TransUnion, Equifax and Dun & Bradstreet — to get a copy of your business credit report. Since it’s not a legal requirement for credit bureaus to provide free credit reports to businesses, expect to pay a fee. Click here to learn more about credit scores and why they’re important.
You can if you use your car for both business and personal use. However, for tax purposes, you won’t be able to deduct any vehicle-related expenses if that were incurred when you were using the vehicle for personal reasons. Only expenses related to earning income can be claimed on your business tax forms. See above for more details.
Stacie Hurst is an editor at Finder, specializing in loans, banking products and money transfers. She has a Bachelor of Arts in Psychology and Writing, and she completed one year of law school in the United States before deciding to pursue a career in the publishing industry. When not working, she can usually be found messing around with games, photography or floral arrangements in memory of her former days as a flower shop assistant.
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