Using Credit Cards to Finance Business Carries Rewards and Risks
Using credit cards to finance business has its place. During periods of tight borrowing, which we’re experiencing now, using credit cards can be a lifeline. But it also has a downside. The key is to employ strategic planning with an eye on your long-term growth and cash flow.
Benefits of Using Credit Cards to Finance Business
Using credit cards to finance business is a quick and easy way to get immediate access to the funds you need. Conventional loans typically entail a lengthy approval process. And credit cards are usually easier to qualify for. They can carry you over temporary gaps in cash flow, paying expenses while waiting for customer payments.
Credit cards also offer flexibility in how much you spend and pay each month. They don’t require collateral like many loans do.
Plus, credit cards can offer substantial perks, like cash back or travel rewards. What’s more, many cards offer a promotional period where you pay 0-percent interest.
Downsides of Using Credit Cards to Finance Business
Which brings us to one downside of using credit cards to finance business – high interest rates. If you carry a balance past a promotional period, you’re going to pay a much higher interest rate than you would with a conventional loan.
If you miss payments, or carry a high balance, you run the risk of damaging your credit score and hurting your chances to acquire traditional financing.
Also, credit card limits are generally too low to pay larger start-up costs or meet long-term financing needs.
Having a Dedicated Business Credit Card Is Crucial
Rather than relying on a personal credit card, having a specific credit for business is vital. You don’t want risk your personal credit score – or even worse, your personal assets – if you’re unable to pay. It’s particularly bad to mix personal expenses with business expenses on a credit card. Besides making bookkeeping more difficult, you blur the line between your business and personal finances. That can pave the way for creditors and authorities to go after your personal assets.
When you use credit cards to finance business, it’s important to pay your balance in full – if you can. If you can’t, have a payoff plan in place – strategize how you’re going to pay it off, especially before any 0-percent interest promotional period expires.
Listen to Your Accountant
Your accountant can help you understand your cash flow and aid you in preparing for ebbs and flows. They can give you a clearer picture of your overall financial health. As well, they can also help you make strategic decisions and aid in obtaining financing.
Links
Washington state’s Small Business Liaison Team has a webpage with links to low-cost borrowing and grant programs for new and established small businesses.
Lastly, you can learn more about our services here!
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