How to Buy a Car in Your Business Name Without a Personal Guarantee
Many newbies to the business credit-building world ask… Is it possible to buy a car in your business name using business credit without a personal guarantee?
Yes, it is possible to buy a car in your business name using business credit without a personal guarantee, but it can be more challenging. To achieve this, your business must have an established credit history and a strong financial standing.
Here are some steps to help you buy a car using business credit without a personal guarantee:
Establish a Business Credit History
Establish strong business credit to purchase a car in your company’s name without a personal guarantee.
Ensure that your business has a separate legal entity and has obtained an Employer Identification Number (EIN). Open a business bank account and obtain a DUNS number from Dun & Bradstreet to build your business credit.
There is an entire process of building credit for business. There are some parallels to personal credit building, yet some distinct differences when dealing with companies. For example, the stepping stone with financial risk assessment starts with securing and being responsible with NET 30 accounts. Learn more about NET 30 accounts and how they work. Furthermore, the credit bureaus and scoring models differ. Here’s a comprehensive guide to understanding why.
Build Business Credit
Building business credit is a crucial component of the success of any company. Establish trade lines with suppliers (known as NET 30 accounts), obtain a business credit card, and make sure all payments are made on time. Late payments can ruin the plan. Pro tip: consistently paying early can raise your Dun & Bradstreet PayDex score above 80, as your payment experiences will be labeled as “prompt” by vendors. This will provide lenders with assurance that you are capable of managing money responsibly.
After building positive tradelines, apply for a business credit card from a provider that reports to the major business credit bureaus. Use the card responsibly and pay off the balance in full each month to improve your business credit score.
After securing a business credit card, be responsible with it by managing credit utilization ratios: Keeping debt levels low will help to keep your overall credit score healthy. It’s important to ensure you don’t overextend yourself financially by only taking on what you can pay off.
Next, regularly monitor your business credit reports. It is advantageous to check your business credit reports from the major credit bureaus regularly to ensure accuracy and catch any errors. Dispute any inaccuracies promptly to maintain a clean credit profile. Nav provides a service to check your business credit reports. Additionally, they offer a prepaid business credit builder service to check your scores and report positive payments to your profile.
Finally (and most important), be patient and consistent. Building a solid business credit profile takes time, responsibility, and consistent effort– contrary to what is misleading on YouTube. It also must be stated, that your business should be profitable to afford the financial risk by adding a vehicle, fuel, insurance, repairs, and maintenance that accompanies it. Therefore, maintain sound financial habits, and your business credit will improve over time. These tips will help build a strong credit profile for your business.
Personal Guarantee: Yes or No?
We must touch on personal guarantees as there are a lot of misconceptions about this on the web and on YouTube. Yes, it is possible to purchase a car in your company’s name without a personal guarantee. However, as stated, your company must be financially sound before this can be considered an option.
However, if the authorized owner has a strong personal credit score, you can personally guarantee the car in the company’s name. Meaning, the financial institution will check the authorized owner’s personal credit, and the authorized owner personally guarantees the payments will be made on time. If in the case of default, the authorized owner will take the hit (not the business), potentially damaging their personal credit.
Much confusion and misconception come from “business credit gurus” who leverage a personal guarantee to obtain a vehicle in her business name, yet mislead others into thinking they purchased it using the company’s name only. It might be advantageous for the authorized owner to personally guarantee the vehicle to progress the company’s strategic plans. Knowing the risks and rewards without deceptive hooks is the key.
Research Lenders and Financing Options
Look for lenders that specialize in business vehicle financing and are willing to work with businesses without a personal guarantee. Explore different financing options like loans, leases, or lines of credit. Contact multiple lenders to find the best financing option for your business, considering interest rates, terms, and any additional fees.
There are several lenders offering automobile financing for businesses, including traditional banks, credit unions, online lenders, and captive finance companies associated with specific automakers. While the availability of lenders may vary by region, here is a list of some lenders that offer automobile financing for businesses:
- Traditional banks:
- Wells Fargo
- Bank of America
- JPMorgan Chase
- U.S. Bank
- PNC Bank
- Credit unions:
- Navy Federal Credit Union
- State Employees’ Credit Union
- Alliant Credit Union
- PenFed Credit Union
- America First Credit Union
- Online lenders:
- Ally Financial
- OnDeck
- Kabbage (an American Express Company)
- LendingClub
- Fundbox
- Captive finance companies:
- Ford Credit (Ford Motor Company)
- GM Financial (General Motors)
- Toyota Financial Services (Toyota)
- Honda Financial Services (Honda)
- Chrysler Capital (Stellantis)
It’s essential to shop around and compare terms, interest rates, and requirements from different lenders before deciding. Remember that your business credit history, financial standing, and the type of vehicle you want to finance will play a significant role in determining the best lender for your needs.
Prepare a Solid Business Plan
A well-prepared business plan that demonstrates your company’s financial stability and growth potential can help convince lenders that your business is a good investment.
Apply for Financing
Once you’ve found a suitable lender, submit your application, providing all required documentation, including financial statements, tax returns, and your business plan.
It’s important to note that obtaining a vehicle loan or lease without a personal guarantee can be more difficult, particularly for small businesses or those with limited credit history. However, by following these steps and demonstrating your business’s financial stability, you may be able to secure financing without a personal guarantee.
Photo credit: Mike Noga & Pavel Danilyuk
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