Having a business credit card for everyday purchases like office supplies, monthly services and even small-ticket equipment is important. But when it comes to big-ticket items like equipment, does it still make sense? It depends.
Big-Ticket Business Credit Card Purchases — The Pros and Cons
While it isn’t typical to pay for higher-priced items like big-ticket equipment with your business card, it can make sense in certain situations. For example, let’s say you’ve been in business for 5 years or longer and you have a small asset to debt ratio. This, plus the good income from your business, lets you obtain a higher credit limit. You come across a low introductory offer from a reputable card issuer and consider using your card to buy $4,000 worth of furniture with the goal of paying it off prior to the expiration date of the offer. You do your research and determine the card issuer is reputable, there’s a sign-up bonus tied to the offer, plus an opportunity to earn ongoing rewards with the card. If you're comfortable with your cash flow situation, you might consider making this large purchase with your business credit card. Doing so would allow you to earn bonus points and any other rewards credited for that purchase.
The Risks of Big-Ticket Credit Card Purchases
Even with those attractive reward benefits, you still have to be careful. Depending on the card issuer and offer, the risks involved with this kind of decision can be high. For example, if something unforeseen happens to your business cash flow that makes it difficult to pay off the balance prior to the expiration date of the introductory offer, this can end up costing you more than you think. Credit card firms typically charge a high annual percentage rate (up to 30%) and may charge this retroactively to the date of the first purchase. Also, the majority of business cards come with annual fees of up to $100 or more. This fee is typically charged at some point after your card is issued – sometimes on the first statement. Be careful that the costs associated with the card offer don’t exceed its benefits.
When Should I Consider Financing the Big-Ticket Purchases?
The threshold for many small businesses making large purchases tends to be around $5,000. When considering purchases such as capital business equipment or office upgrade expenses that total more than $5,000, you should determine if it’s better to pay cash or finance it. Either way we recommend you carefully examine all credit offers, rates and fees closely before deciding.
Professional Solutions Financial Services’ MilesAway® rewards-based business credit card offers low introductory and ongoing rates, which can help you earn valuable rewards while you build your business. We also offer fair and honest equipment loans with absolutely no prepayment penalties.