Your SME may require a host of fixed and immovable assets. Vehicles are commonly purchased or leased for business purposes. When you purchase a vehicle for your business, any employee of that business can utilize the vehicle for company purposes. This acts as an effective money-saving mechanism for companies looking to reduce their travel reimbursements to employees.
Company-owned vehicles usually undergo more wear-and-tear than personal vehicles, since they are used by different drivers. Once your company is up and running, it may be possible to qualify for a business loan or lease option for a company vehicle.
The process of getting a vehicle under your company’s name requires a little work. For starters, a business loan can only be approved if a business’s credit rating is sufficiently high. Many sole proprietors and 1-person businesses do not understand how to establish business credit facilities. Fortunately, the process is similar to building personal credit. Routine activities like paying bills in a timely fashion, utilizing business credit cards effectively, and applying for other business lines of credit can certainly help. The procedures for applying for business lines of credit require several steps to be completed before approval is granted. These include the following:
- Applications for Business Credit Cards – these are the easiest way to establish a credit profile for your business. Provided payments are made in a timely fashion, it shouldn’t be a problem building up business credit.
- Applications for Business Loans – a small business loan is an excellent way to build up your business’s credit profile. Once again, it’s imperative that the payments are made in a timely fashion so that your credit can gradually improve over time. Note that it’s not the size of the business loan that matters – it’s the fact that you are establishing credibility for your business.
- An Employer Identification Number (EIN) – this number is provided to you by the tax authorities. It should always accompany all credit-related queries, payments and accounts. Once you have established business credit through your EIN number, your company will be able to act as an independent entity without your SSN (Social Security number). Vendors, lenders, and corporations will use your EIN number for all company-tax issues. Applications for EIN numbers can be made through the Social Security Administration and the IRS.
Establishing business credit facilities
Once the above steps have been completed, you can go about building up your credit profile with lenders. You can start with loan proposals for a vehicle that you’re interested in leasing or purchasing. Of course, it is necessary to fully outline the nature of your business, the experience you have in managing a business, personal financial documentation, a loan request, a loan value, a down payment amount, etc.
Further details such as leases, licensing, contracts, partnership agreements, reference letters, marketing strategies, and other forms of collateral may need to be provided to satisfy the requirements of the sales manager of the automobile company. Once you have found a car dealership that accepts your proposal, be sure that you stress the commercial nature of your purchase or lease to ensure that it is a business vehicle.
Insurance is mandatory on any leased vehicle, and certainly on a purchased company vehicle. Cars are depreciating assets, and this is evident in the reduced market value of a vehicle that is driven off a showroom floor. As soon as a vehicle has changed hands, its value depreciates, and that continues every year until its book value is minimal. In the United States alone, there are some 252 million+ vehicles owned by 210 million+ people. 2016 was a record year with almost 17.6 million new consumer vehicles including motorbikes being purchased. All of these vehicles require insurance. The average purchase price of a vehicle in the United States is $33,000.
Saving money on company vehicles
Here is a startling statistic about insurance premiums: Over the past 5 years, research indicates that Americans have collectively overpaid on insurance premiums by some $100 billion. People who shop around for personal or business insurance can save on average $400 per year. What’s equally startling is that most people (75%) stick with their same insurance provider for at least 4+ years.
This locks in an auto-renewal on the policy without the owner checking around for better deals. It is true that shopping around saves money and it is entirely possible to find cheap car insurance by using comparative shopping websites to do so. In fact, a Power Study by JD found that in 2016 people who change their auto insurer saved an average of $356. This is even more relevant with insurance on business vehicle since there are typically fleets of vehicles involved.