Using a Credit Card To Finance Your Small Business

Using a Credit Card To Finance Your Small Business – One method of financing for small business owners is to use a credit card to support the business, which may be appealing to new business owners and entrepreneurs who have limited funding options.

Credit card financing may be used by a business owner to open the doors of the firm or later in the business’s life for running expenses. Credit card financing is a valid type of business finance, and it can be a realistic alternative if you have a big credit limit, a low-interest rate, and a card that rewards you when you use it. Credit card financing, on the other hand, isn’t always the best option.

A Startup Has No Credit of Its Own

Credit card financing is being used by even small firms to get their operations off the ground. Although business startup owners may have personal credit, the company does not yet have business credit. If the proprietors have good personal credit, they can usually get personal credit cards, which they can use to cover the costs of starting a firm.

According to the US Small Business Administration (SBA), 46 percent of all small business owners use personal credit cards to launch and/or operate their enterprises at some point.

Apart from personal debt finance, there are other choices. If your startup is expected to grow quickly, you might be able to raise venture capital or find an angel investor to help fund it. Because a startup does not yet have business credit, bank loans and lines of credit are improbable.

Using a Credit Card To Finance
Using a Credit Card To Finance

Pros Explained

Lower Interest Rates

Some types of financing, such as credit cards, may have lower interest rates than others. The average annual percentage rate (APR) for all credit cards in U.S. News and World Report’s database is 15.56 percent to 22.87 percent, according to a recent poll. When you separate corporate credit cards, the rates are relatively comparable, ranging from 14.22% to 22.19%. Asset-based lending and other forms of company finance typically have higher interest rates than credit cards.

Don’t Lose Any Equity

Because the debt is all yours, you don’t lose any stock in the company. One sort of debt financing is credit card debt. You incur debt, which is a liability, whether you use a company or personal credit card. When you employ debt financing to finance a business, you don’t have to sell any shares or give up an ownership stake.

No Balance Transfer Fees

There are usually no fees associated with balance transfers. If you have to pay for your starting fees using a personal credit card, you should be able to transfer the debt to a business credit card once your company is up and running. This is recommended because, for tax purposes, you should keep your personal and commercial interactions separate.

Revolving Credit

You have revolving credit, which you can use again after it has been paid off. Because it is revolving credit, you can use a company or personal credit card once you have paid off your debt.

Rewards Programs

Owners of credit cards can participate in reward schemes. By using the card, you may be able to earn points toward subsequent purchases, cash back, or airline miles. All of these could be beneficial to your company.

Used to Manage Cash Flow

Credit cards can help with financial flow management. You can maintain track of your cash flow if you have a credit card that keeps track of your expenditure, potentially in categories.

Cons Explained

Easy to Abuse

Credit cards are simple to misuse by amassing large balances and failing to make payments, both of which have financial ramifications. They are only eligible as a source of business funding if you are a responsible cardholder. You will incur exorbitant fees and actually cost your business money if you miss payments or exceed your credit limit.

May Not Have a High Enough Debt Limit

If you use a personal credit card for business, you may not have a high enough debt limit to cover your personal obligations. If you’re thinking about using a personal credit card for business purposes, be sure the credit limit is large. You can have a personal emergency and require it right away.

Can Be Locked Out of Other Types of Credit

If your credit card amount is too large, you may be denied access to other types of credit. After paying for your beginning fees with a credit card, you or your business may find that you or your company has accumulated too much debt to qualify for alternative types of business finance as your company grows.

Alternatives To Credit Card Funding

Finding funding for a new firm is typically difficult. Credit cards, on the other hand, aren’t the sole or even the best option. There are other things to think about before going down this path.

Personal Wealth

Individuals frequently put money aside for a long time in order to realize their company ideas. You would likely receive a higher return on your personal savings, or a portion of it if you utilize it to start your business rather than leaving it in a bank.

Funds From Family and Friends

Your family and friends can be enthusiastic about your business concept and wish to help. They may be able to provide low-interest loans as a source of startup money. They can even ask whether you’d be willing to split ownership of the company with them in exchange for their contributions. Some people may even give you money as a gift.

Funds Based on Your Personal Assets

The majority of people’s main asset is their home. If you own a property and have any equity in it, you may be able to use that equity to raise startup funding in one of three ways:

  • Refinancing: You might be able to refinance your home and use the equity to fund your startup.
  • A second mortgage is referred to as a home equity loan. You’ll need to go through the same application process that you did when you got your first mortgage. You must repay this loan on a monthly basis, but it is a crucial source of initial funding.
  • HELOC (Home Equity Line of Credit): A home equity line of credit simply takes advantage of the equity in your property and allows you to borrow money against it.

Small Business Administration Loans and Grants

Small businesses can apply for loans and grants from the SBA. The organization does not lend money directly, but it does give loan guarantees to lenders. The SBA 7(a) loan and the SBA Microloan are two types of loans that are available.


Crowdfunding is the method of raising funds from the general public for your business’s launch capital. It’s become a more popular way to raise money, and it’s usually done through one of the many online crowdfunding platforms. It’s especially handy if you’re looking for seed money for your startup.

Venture Capital and Angel Investors

If you believe your company will be a high-growth, high-profit startup, you should look into securing venture capital funding. If a venture capitalist is interested in your project, they will fund it. They also require a share of the company’s ownership. VC-backed businesses are often taken public after they have been launched.

High-net-worth individuals that invest in a fledgling company are known as angel investors. They frequently offer money as well as assistance and guidance. Angel investors may demand a share of the company’s ownership as well as a certain rate of return on their investment.

How To Use Credit Card Financing Carefully

Having a lot of credit card debt and not being able to pay it off can have a negative impact on your professional and personal life. When you use a credit card to fund a business beginning, the assumption is that you are pretty confident that your company will succeed and create enough cash flow to pay off your debt. In the meanwhile, it’s critical that you make good use of credit card borrowing.

  • Read the credit card’s terms and conditions before using it. You should be aware of what you’re getting yourself into. Carefully read the terms and conditions that come with your card. Return the credit card if something does not suit your needs. If you have any questions, don’t hesitate to ask.
  • Pay your bills on time. Even a single late payment can affect your credit score for years. To ensure that payments are made on schedule, set up autopay with your credit card provider or your bank.
  • Make a larger payment than the minimum. It will take years to pay off a credit card if you only pay the minimum monthly. Make an effort to pay more than the bare minimum each month.
  • Negotiate a lower rate of interest. If you maintain a solid payment history with your credit card issuer, you may be able to negotiate a lower interest rate on your card, allowing you to pay it off more quickly.
  • Do not exceed your credit limit. If you exceed your credit limit, your interest rate may be increased by the credit card provider.
  • Check to see if your monthly statement is correct. Check your statement every month to ensure its accuracy in today’s world, when fraud is a daily occurrence.
  • As quickly as possible, pay off your credit card debt. You may be able to pay off your credit card debt by refinancing it with a standard business bank loan as your company expands.

The Bottom Line

Using personal credit card loans to fund your new startup business isn’t the ideal option. Provided it’s the only option, there are ways you can employ if you’re cautious. There are benefits and drawbacks to using credit cards for companies, but the best advice is to replace them as quickly as possible with more traditional business finance. If you have credit card debt, be extremely cautious and adhere to the card’s terms and restrictions.

As quickly as possible, tap into one of the alternate sources of small business finance. You will be able to pay off your credit card debt faster if you do this.

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