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Using credit to finance a large purchase
Q: My business has grown substantially and we're moving to larger facilities, but don't have the cash on hand to buy what we need. What's the best way to finance the purchase?
A: As a practical matter, most small businesses today use business credit cards not only to buy equipment, but also to obtain capital to run their companies. Even though the interest rate on credit card borrowing can run 10 percentage points or more higher than conventional business loans, credit card borrowing seems to be the financing method of choice for the majority of small businesses. Over the past several years, the availability of SBA–backed loans has diminished greatly because of budget cutbacks for the Small Business Administration, fewer commercial banks participating in SBA loan programs, and higher SBA fees. In contrast, credit card borrowing is widely available and easy to arrange, with many financial institutions providing generous purchasing limits and lines of credit to small companies. Using credit cards to finance equipment purchases makes good sense when repayment is anticipated within a short time (e.g., few months). The interest is tax deductible. And timely repayment helps to build up the company’s credit rating, facilitating future commercial loans at more favorable rates.
Some issues discussed in the expert forum are complex and continually changing.We recommend you consult a professional advisor about your specific circumstances, needs, and applicable laws. More details.