Finance

The Best Way to Buy a Company Car

Magazine Contributor
Entrepreneur Contributor
2 min read

This story appears in the October 2013 issue of . Subscribe »

Ask three business owners the best way to pay for a company vehicle, and you'll likely get three different answers: buy, finance or lease.

Jonathan Crandall, who runs J.C. Landscaping in Danvers, Mass., is a big believer in holding out for financing deals that pop up at the end of a model year. "If you're in good shape financially and have some working capital in the bank, take advantage of 0 percent financing," he says. "It's free money."

If great deals aren't being offered when you need them, then lease. You'll usually have a smaller upfront payment and smaller monthly payments with a lease vs. financing. Matt Shoup, founder of M&E Painting in Loveland, Colo., wishes he'd followed this advice a few years ago, when he purchased a 2007 Honda Pilot, 2005 Chevy pickup and 2005 Chevy van. "We made the mistake of buying three vehicles all at once, in cash. We definitely needed the vehicles, but it really tied our hands from a cash-flow standpoint and limited our ability to grow the business," he says.

Whatever route you take with your vehicle purchases, don't forget to factor in liability. "If your company frequently allows employees to drive vehicles as part of the primary business (e.g., deliveries, sales calls, on-site repair calls), protect your business by establishing a separate company or corporation whose sole function is to lease or purchase and insure those vehicles," says Boca Raton, Fla.-based CPA Noah B. Rosenfarb. "You want to segregate that liability out of the operating company, into an entity that has no assets other than the vehicles. That way, if an employee gets into an accident, the only assets the other party can go after are the vehicles."

In such a scenario, financing is usually guaranteed either personally by the owners or cross-collateralized with other entities with the same ownership team, but the titles--and risk--are held by the new corporation.

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