Small business owners use credit cards to finance their operations at times. Following the Great Recession of 2008, banks effectively stopped lending to small businesses. This left these companies with limited choices if wanted to continue operations.
Use of Credit Cards to Finance Start-Ups
Today, start-up businesses are also using credit cards to take off as these entrepreneurs typically do not have business credit. These owners do have their personal credit which translates into personal credit cards.
In today’s business world, you need to have an investment plan to launch your startup – how you will manage the initial costs, whether you will apply for a loan or manage it with your savings. A good credit score can help you get more credit limit and you can apply for premium credit cards for getting more perks ( min interest charge, online transactions charges) that will help you to set up your business.
In using personal credit cards to fund a business, these small business owners become personally liable for any debt incurred. This makes one wonder what would happen if the entrepreneur incurs significant liability on credit cards and the business does not take off? This means that the individual would be saddled with massive debt with nothing to show for it.
By using a personal credit card to finance a business, an entrepreneur takes on substantial risk. But with a startup, the company owner will not be able to qualify for business credit right away (which offers some measure of protection). A small business owner or startup isn’t left with many choices if they can’t get a bank loan or investor funding.
Private Loans from Friends and Family or Personal Savings
It is advisable to use one’s own savings or loans from friends and family as far as possible. In case these avenues are not available and you have a fantastic idea for a startup, then turning to your personal credit card may be your only option. If you are using credit card financing to fund your business, then what aspects should you consider?
Prior to using your credit card to finance your business, review your credit report. Ensure that you are current with all your obligations. Here, the most crucial thing is being able to afford to pay off the credit card bills that you will incur by using your card to finance your business. It is essential, at the very least, to understand how much debt you have on your credit card and whether you will be able to manage the minimum payments.
If you figure out that making even minimum payments on your credit card will be unmanageable for you, then you need to reconsider your decision to use your credit card for your business.
Making Timely Payments and Negotiating Lower Rates of Interest
Try to negotiate lower rates of interest with your credit card company if you have stellar credit. A significant cash advance may be required initially for your business to take off. Negotiate to get the lowest possible interest rate on your cash advance. You may be able to pull this off if you always pay your bills promptly and have a decent credit score. It is advisable to finance your business with a minimum of three premium credit cards as this will enable you to negotiate lower interest charges as you set-up your business.
Credit card companies may increase their interest rates as you start financing your enterprise with personal credit cards. There is not much you can do about this except ensuring timely payments.
We hope that this article offered you some insights on financing your small business with your personal credit card. It will help you in starting and improving your small business. Don’t forget to leave us your thoughts on the topic in the comments section below!
- Pros and Cons of Financing a Business
- Evaluating Financing Options for Your Business: Myths and Facts
- How to Use Business Credit Cards to Build Business Credit
- Best Credit Cards for Every Type of Purchase
- Starting a Greeting Card Business
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