Applying for vehicle finance with the help of your ABN, or Australian Business Number, is a popular and more accessible means of obtaining a competitive car loan when you don’t meet the requirements of more conventional finance options.
Upgrading your work vehicle via an ABN car loan gives potential business buyers a wider range of finance options outside a conventional loan. Looking deeper, there are also some significant tax advantages that your business can leverage moving forward, making an ABN car loan particularly attractive for enterprises and sole traders.
It’s worth noting, though, that the added accessibility often comes with higher interest rates and fees, as well as a range of obligations and added risk factors that mean doing your homework is of the utmost importance.
For all of its accessibility benefits, there are several things you need to keep in mind when applying for a car loan with your ABN- let’s get your biggest questions answered.
See Also: Business Car Loans Guide
What is an ABN Car Loan?
The concept of an ABN car loan is fairly straightforward, mirroring that of a conventional secured car loan or chattel mortgage.
Your suitability for a commercial vehicle loan is determined by your Australian Business Number (ABN) activity, which can help to skirt around some of the more rigid loan requirements when it comes to irregular income.
This presents potential car buyers with another ‘low-doc’ opportunity for vehicle finance and remains one of the most popular ways for self-employed Aussie sole traders and business owners to upgrade their wheels.
There are also ‘full-doc’ ABN car loans which require even more documentation while applying, but can often fruit more favourable loan terms and payment cycles.
Who Can Apply for an ABN Car Loan?
There are a few hoops to jump through before applying for an ABN car loan. Criteria generally includes the following:
-
Australian citizens and/or permanent resident visa holders
-
Current ABN holders
-
Registered for GST (i.e. if your business income is expected to be above $75,000 per annum)
-
Demonstrated time operating (typically 12 - 24 months)
-
50% or more vehicle use specifically for business purposes
-
Minimum of 18 years old
You may also need to provide up to two years' worth of business activity statements (BAS) to satisfy ‘full doc’ loan requirements.
What You Need to Know About ABN Car Loans
-
Minimum 50% vehicle use for business purposes: As a business purchase, you’ll need to prove that the vehicle is used for a minimum of 50% business purposes, typically requiring logbooks.
-
1-7 year loan periods: Lenders offer ABN car loans often with longer terms, up to seven years over the typical five-year terms of a conventional car loan.
-
Borrowing up to 100% of the vehicle’s value: Some lenders may allow you to borrow with a higher loan-to-value ratio - in some cases, up to 100% of the value.
-
Finance for used and brand-new vehicle purchases: ABN loans can be used to purchase a brand-new or used vehicle, so long as it’s primarily for business purposes.
-
Potential of some flexible repayment terms: In some cases, a lender may offer a varying repayment schedule that mirrors that of your cash flows, which is useful for any seasonal downturns.
What Documentation is Required for an ABN Car Loan?
While it varies between lenders, typically you’ll need to provide a range of financial documentation when applying for an ABN car loan.
-
Some of the most common documents required include proof of identity, as well as your ABN, tax returns and business activity statements (BAS), plus your profit & loss and bank statements.
These documents help to give the lender a clear snapshot of your financials, including revenue and any existing liabilities.
Lenders may also ask for things like a business plan and relevant forecasts that can help to give the finance provider some confidence in your ability to service the loan.
What are the Advantages of an ABN Car Loan?
-
Accessibility: Low-doc finance options are available for businesses and sole traders that don’t fit through the traditional hoops.
-
Tax Deductions: A portion of loan interest & fees, even vehicle running costs like registration, fuel, maintenance, and insurance may be tax deductible.
-
GST Credit: Businesses can claim a credit for GST paid on the purchase price, up to $6,334 for FY24-25.
-
Flexibility: Some lenders can provide flexible payment schedules if your business encounters sporadic income periods, with payment terms stretching out to seven years.
-
Access to High Loan Amounts: An ABN car loan allows you to borrow up to 100% of the vehicle’s value and, in some cases, up to $500,000.
-
Optimised Cash Flow Management: With a predictable repayment schedule, your business can clearly map out in- and out-flows of cash.
-
Improved Credit Score: Meeting your repayment obligations can improve your business credit score and help to secure more favourable terms in the future.
What are the Drawbacks of an ABN Car Loan?
-
Potential of Higher Interest Rates: For all the accessibility benefits, ABN car loans often come with higher interest rates attached, though this isn’t always the case. This is often a risk adjustment as the lender sees small businesses as more risky borrowers.
-
Hidden Fees: Like most vehicle finance options, ABN car loans have a raft of fees attached, including early repayment, ongoing monthly and establishment fees, so be sure to read the fine print.
-
Usage Restrictions: You’ll need to prove the vehicle is being used for at least 50% work purposes, which requires some detailed logbooks and recording.
-
High Stakes of a Secured Loan: It’s essential that, before signing the dotted line, you’re positive in your business’s ability to service your loan repayments to avoid significant headaches down the line.
-
Legal Ramifications: Should you fail to meet you repayments or default on the car loan, your business could be in jeopardy. This could prove a headache if you have employees whose jobs are also at risk.
-
Lender May Not Apply Responsible Lending Guidelines: Car loans for vehicles primarily for business purposes might not have to abide by the National Consumer Credit Protection Act (NCCP) of 2009. This includes doing due diligence on the borrower, such as if they have a capacity to repay the loan, and to offer hardship support.
What are the Tax Implications of an ABN Car Loan?
One of the biggest tax implications of an ABN car loan often becomes a positive for business operators.
This is due to the fact that the vehicle and associated finance costs are classified as business expenses and therefore become tax deductible.
While you can only claim a certain percentage of these costs as a tax deduction, the ability to claim things like GST on the initial purchase price, interest, as well as depreciation, can prove invaluable for Aussie businesses and sole traders.
When buying a car for your business, you may also be eligible for the instant asset write off scheme from the Federal Government, allowing you to write off any asset up to the value of $20,000.
Costs Associated with ABN Car Loans
ABN vehicle loans incur the usual range of costs, fees and interest rate charges as a more conventional vehicle loan. This means you’ll need to budget for everything from:
-
Initial loan amount: The sum you’ve borrowed from the lender to purchase the vehicle.
-
Interest rate: The percentage of interest attached to the initial loan amount, outlined by the lender that is payable until the loan term finishes.
-
Establishment fees: While it’s not always the case, ABN loans are subject to the same establishment fees charged by the lender for setting up your loan.
-
Loan processing fee: Otherwise known as a documentation or statement fee, payable for any work involved in processing your initial paperwork while applying.
-
Ongoing fees: Lenders typically pass on an account management or ‘ongoing’ fee that is charged on a monthly or annual basis.
-
Early payment fee: Lenders often charge a fee if your loan ends earlier than initially outlined, either due to refinancing where it’s known as an ‘exit’ fee, or paying it off in full ahead of time.
-
Balloon amount: Many lenders offer balloon payments up to 50% of the purchase price. It is a one-off lump sump that you’ve agreed to pay your lender at the end of the loan term; not all ABN loans entail a balloon payment. They can lower your repayments but could mean you pay more in interest.
Need help with a car loan?