You Can’t Rely on Credit Cards Anymore

Cash is the most popular approach to small business equipment financing. 37% of small business owners use it to start their business. But for the other 63%, cash isn’t an option—most small businesses simply can’t afford to pay cash for large purchases.

Maintaining cash flow is the number 2 concern for small business (just behind generating sales). Most small business owners have experienced significant cash flow issues at some point and 28% expect cash flow to be their biggest concern in the near future.

Many financial advisors will advise individual consumers to wait and save up cash to afford that large item. But that advice doesn’t often apply for small businesses.

Small businesses use equipment (usually considered a large purchase) to generate revenue. Whether old equipment broke and needs to be replaced, or small businesses need a critical equipment upgrade to grow their business, equipment purchases can’t wait. 74% of businesses don’t have the cash on hand to cover an equipment expense—emergency or otherwise.

In this situation, many business buyers turn to credit cards. It’s easy, accessible financing. Here are the good things about credit cards.

But while credit cards may be the instinctive option, there are some serious drawbacks for both buyers and sellers.

1. Credit cards aren’t as ubiquitous as you think.

Credit cards may seem unavoidable. It would certainly be a challenge to run a business without accepting credit cards. But ever since the 2008-2009 recession, credit cards are losing their luster. 29% of Americans don’t have a credit card. Among younger generations, that number is even higher. Nearly half (49.7%) of Americans ages 18 to 34 don’t own a credit card.

Even customers who want credit cards, don’t necessarily have them as an option. 14% of customers who use point-of-sale financing don’t qualify for credit cards. These are customers that would have walked away without a different financing option available.

2. It’s expensive financing.

Credit cards—always a source of high interest rates—are seeing rates jump. The average APR for new credit cards in 2021 was 20.82%. Some credit cards had APRs as high as 25.77%. Carrying a balance on a credit card gets more expensive when you remember that you pay off the interest first. If you only make small monthly payments—or the minimum payment—you could end up owing more and more on your card month after month.

Unfortunately, 40% of small businesses consider themselves to be financially illiterate—meaning they might not be aware just how expensive credit card financing can be.

3. It’s unpredictable.

Credit cards are flexible, but that makes them unpredictable. Credit cards are simple to swipe and, if you can pay them off every month, they can be extremely affordable. But carrying a balance on a credit card can get expensive quickly and it can be difficult to know how much you’ll actually end up paying. 53% of active credit cards carried a balance in the last quarter of 2021.

Other financing options may take a little more time to get started, but they can save months of hassle and unpredictability by the time all is said and done.

"Clicklease has been the fastest to pay and the fastest to approve. I’ve had several people get approved with very, very low credit scores. It helps us get machines into the hands of people that could never get one before because they approve people that get denied from other places. I prefer Clicklease for my customers. It’s what I always recommend…It takes like 2 minutes to get approved through Clicklease…within a few days you have your machine. You can’t really do better than that."

Phil Burchim, Sales Manager, Empire Construction Company

4. Credit cards make more sense for non-equipment purchases.

Credit cards are a great resource, because they can be used to balance cash flow for almost any purchase. But they aren’t unlimited. Credit limits...well…limit the amount you can spend on a credit card. In an emergency, you’ll want to be able to use your credit card for non-finance-able expenses.

To keep your available credit as high as possible, it’s a good idea to diversify the types of financing you can use. Equipment-specific financing keeps large purchases off your credit card, so that spending limit is available for everyday expenses.

Diversifying your financing can also help your credit by improving your “credit utilization rate,” an important factor in determining your credit score.

5. Credit card processing fees

Many buyers aren’t aware that businesses pay a fee on every credit card transaction. But sellers are no strangers to credit card processing and transaction fees. Since many customers pay off their balances every month, credit card companies “hedge their bets” by charging businesses a fee for accepting credit cards.

Processing fees vary from business to business and each credit card company charges their own fees. Processing fees, assessment fees, interchange fees, and transaction fees are usually charged on every credit card swipe. They can easily add up to more than 5% of the total purchase price. And those fees come directly out of the seller’s bottom line—or they are passed on to the buyer (this is becoming more and more common in retail establishments).

The charts below show just how expensive a credit card really is for an equipment seller.

It’s time to consider offering financing alternatives.

While credit cards may be the best fit for some customers, they shouldn’t be the only option. Unfortunately, in this age of credit cards, customers often assume they don’t have options, so it’s important to advertise financing options early and often throughout the buying process.

Financing is an important part of any sales conversation. Adding a financing option can increase average order value and flexible financing increases buyer confidence.

At Clicklease, we offer simple equipment financing for small businesses. We approve buyers who are often overlooked by traditional financing. Once approved, customers can choose from several payment options to find the terms that best fit their revenue expectations. Predictable monthly payments make it easy to budget and makes equipment more affordable.

And Clicklease doesn’t charge seller fees, so you’ll receive the full invoiced amount. No discounting needed and no 3-5% processing/transaction fees. But like a credit card, we offer same-day funding—you get paid right away and customers get their equipment as fast as if they’d paid cash. It’s a win-win.

Learn more at clicklease.com.