Financing Business Using Credit Cards

Is financing business using credit cards really a good way to starting a business successfully?

financing business using credit cards

Financing business using credit cards is a method that has to be carefully monitored as it can easily spiral out of control.

When I started my business in 2002 following being made redundant I relied heavily on credit cards to finance my business. I was constantly transferring debt from one card to another using money transfer deals. When I eventually got my head above water I swore never again to use them in that way and decided that this technique was best forgotten.

Yet even well know business people have done just the same. I was reading recently how Charles Huang, the former partner of Harmonix and designer of the plastic guitars for “Guitar Hero” maxed out his credit cards to finance the company in 2007.

It seems an increasingly large number of businesses are financing business using credit cards. Some entrepreneurs use their personal credit cards, while others use business credit cards.

If you do choose to go down this route go in with both eyes open and consider all the risks before moving forward. What credit cards you use is down to what is available to you.

If your business can get its "own" credit cards, get them and use them. If not (like maybe the business is too young) you'll have to use your personal credit cards.

Business credit cards are similar to personal credit cards, except that they sometimes charge a yearly fee and allow you to provide other employees with their own cards to pay for travel and expenses etc.

Be careful before you run out and sign up for one, make sure you read the small print.

Often Credit cards companies draw you in with offering 0% balance transfers and 0% on using the card for a limited period. However if you go beyond that offer with out paying it of they hit you with large fees which are often charged by the day.

If you are already financing a business using credit cards check you are not paying over the odds, by using cards with uncompetitive rates; or are failing to pay them off and generating high interest levels.

Risks of financing business using credit cards

Remember that you still have to pay it back. If you keep putting money in to a business idea that’s not profitable you could end up in real trouble.

So you need to track your sending, you could be more easily tempted to spend money on items that are not necessary or not directly related to the business.

Make sure you have a sound business plan and monitor you progress to ensure you are staying on track.

What Can You Use Credit Card Finance For?

1. Financing business using credit cards is extremely useful for small items and consumables that you business requires; you can make payments quickly and conveniently. A credit card is also ideal for internet purchases, as it affords you more protection in the event that what you ordered does not arrive.

2. Credit cards are good for buying items that are considered expenses and as most cards are accepted all over the world they are perfect for traveling money. Some business use them for trusted employees. Remember though to monitor expenses carefully and let employees know what acceptable expenses are! .

3. It is still useful to have a credit card for purchasing online as purchases are protected. If usingone for larger items such as computer equipment and office furniture be sure of paying the card off however, otherwise the interest can build up quickly. .

4. As I have already mentioned some businesses use financing business using credit cards a method of providing working capital finance.If you choose to do this be aware that interest will build up quickly, particularly if cash withdrawals have been made (these generally have higher interest rates than purchases). .

Advantages of financing business using credit cards

Speed – Credit cards are quick and easy to use, even if you are abroad. You can access finance up to your credit limit at any time, making them very useful for dealing with unexpected costs.

Flexible – You can use credit cards to pay for things as you need them, last minute or unexpected costs can be covered without as much worry about your cashflow; as you are given up to 56 days before paying interest. Though you should always pay off as much off the credit card balance as possible to avoid interest building up.

Manageability – As all the purchases made on credit cards are listed (online and in bills), they make it easier to keep track of purchases than cheques or cash which involve keeping numerous receipts. Id you provide employees with a credit card then it becomes much easier to keep track of their purchases, and advise them where purchases may not be considered suitable expenditure by you.

Disadvantages of financing business using credit cards

Cost – Most credit cards have relatively high rates of interest compared to loans and other finance; this means that if you allow interest to accrue the cost of using credit cards can be very high.

Expenses Control – If you give a credit card to an employee, they are able to pay for expenses and other costs instantly. Whereas if they had to pay cash you could ensure that they do not get their money back for items you consider not to be expenses.

Helpful Tips when financing business using credit cards

Payback Quickly – The quicker you pay back your balance, the cheaper a credit card will be for your business. Paying only the minimum payment will mean paying large amounts of interest, and mean a much longer repayment time.Find The Right Deal – There are many different credit card deals out there, and depending on how you expect to use your card, some will be more suitable than others.

Select a credit card that works best for what you're going to use it for and how you'll pay it off. Some cards have higher interest rates but lower annual fees: this is good if you're going to pay off the balance in full every month. Look for lower interest rates, even if there are higher annual fees, when you know you'll only be paying a portion of your total outstanding bill.

Look at what perks come with the card and whether you'll really use them. Frequent flyer miles sound good, but will you pay a higher interest rate or higher fees to rack up miles you may not be able to use?

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