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Should I buy business equipment on credit cards?

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April 25, 2022

Credit cards aimed at businesses can sometimes get an introductory APR period as low as 0%. While this seems like a smart choice for short-term financing, recent interest rate hikes could make these offers a thing of the past. Even if they still exist, an unstable credit market could be financially devastating if the principal isn't paid back in time.

Reasons to Use a Credit Card for Equipment Purchases

There are times when using a low-rate credit card to make a business equipment purchase could make financial sense. Offers for 0% introductory APR allow a business to make a large purchase and split the payments over the introductory term. This not only helps to manage cashflow, but the business owner also avoids the cost of interest payments. In addition, some business credit cards offer rewards perks or cash back - making them a smart choice for business purchases.

Using a card also gives business owners the ability to purchase equipment quickly. For example, if you need a substantial piece of office furniture or several new computers, using a credit card eliminates the need to apply for funding or take a large dip into your cash reserves.

On the other hand, if you don't pay the equipment back fast enough and the introductory rate period ends, you might pay substantially more than you would if you got a simple equipment loan from the start or explored other equipment financing options.

What can I use my business credit card for?

You can use your business credit card the same way as a personal credit card. However, business credit cards should only be used for business-related items such as office supplies, routine maintenance, and other soft costs. Like personal credit cards, you can create authorized users and give employees access to the business account. This way, they can help keep your business running without you having to hang over their shoulder.

What are your options for financing equipment?

Merchant Cash Advance

Alternative working capital products like a merchant cash advance offer a quick way to access funding for businesses of any size. The biggest benefit of using a merchant cash advance or similar product for equipment financing is the flexibility of the funding. In addition, it's typically easier and faster to obtain this type of equipment financing thanks to shorter application processes and an emphasis on business performance over personal credit.

Term Loans

Term loans are probably the most well-known form of equipment financing. Term loans allow you to own the equipment outright once the loan is paid off. Traditional term equipment loans offer fixed interest rates and a lump sum of money, but require collateral. The Small Business Administration, traditional banks, credit unions, and many alternative lenders provide various types of small business equipment loans to fit your exact needs. However, when considering this type of financing, it is essential to weigh all of your options.

Equipment Leasing

If you have an extremely expensive equipment purchase in mind, an equipment lease might be the right solution for your business. Equipment leases typically offer higher dollar amounts and longer terms, as well as coverage for maintenance and delivery charges. If you simply need office equipment or smaller machinery, a shorter-term working capital solution might be a better fit.

Business Line of Credit

A business line of credit might have higher rates than other equipment financing, but you only have to pay interest on what you use. It's available to use as you need, when you need it, rather than a lump sum meant for a specific item. This gives you greater flexibility. However, to obtain a business line of credit, you must apply. And startups or businesses with a less-than-perfect credit score may struggle with getting approved.

Weigh your options

When thinking about business financing, ask yourself what you need to fund an equipment purchase. Speed? Flexibility? Stability? Equipment loans might provide stability, but lines of credit or credit cards don't tie you down. If you need flexible cash quickly, a working capital product might be the best choice. When you are ready, Good Funding can get you a same-day decision with no hard credit pull and no obligation to move forward.

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