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Credit Card Loans: 4 Ways to Use Credit Cards to Finance Your Business

Priyanka Prakash

Staff Writer at Fundera
Priyanka is a staff writer at Fundera, reporting on business financing, law, and news. Previously managing editor at Fit Small Business, she's also a licensed attorney who served as general counsel at a Y Combinator tech startup. She loves helping entrepreneurs launch, run, and grow their businesses.
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Using credit cards to finance a business might seem like a bad idea, but can actually be a highly convenient, flexible option. Both startups and existing businesses can incorporate business credit cards into their financing plan and growth strategy.

In fact, a US Trust survey from 2017 showed that 16% of founders relied on plastic to start their companies. Among millennial business owners, the number was even higher—37%. And research from Capital One found that 67% of established business owners have a business credit card.

With these kinds of numbers, you’re probably wondering whether and how credit card loans fit into your business’s financing plan. The nice thing about credit cards is that they offer flexibility that other types of financing do not. You can do far more with a credit card than simply swiping it at the register or using it to buy things online. Credit cards allow you to tap into cash and liquidity that you otherwise wouldn’t have, and many cards offer perks—like rewards points and signup bonuses—that can help you achieve your business goals faster and more cost effectively.

That said, when you borrow on a credit card, there are also disadvantages that you need to be aware of—credit card loans that stretch your finances too far can backfire and land you in a pile of debt.

Here, you’ll learn about different ways to use your credit card for business financing, best practices to follow, and pitfalls to avoid. Plus, you’ll hear from entrepreneurs who successfully used credit cards to start or grow their businesses.

Why Credit Cards Loans Can Be Better Than Traditional Business Loans

When you have a small business, there are dozens of different expenses that you need to account for, including startup costs, equipment purchases, hiring and payroll responsibilities, and day-to-day costs like marketing and buying raw materials.

While the more common small business funding method is to secure a business loan, many people opt for credit cards in lieu of or in combination with traditional business financing.

For starters, credit cards offer a much easier and faster application process than loans. Plus, credit cards offer several benefits that loans don’t have. Rewards points, cash back, 0% intro APRs, cash advances, and balance transfers are just some of the perks that you can access on a credit card. Lastly, credit cards offer revolving credit—continuous access to a credit line as you pay down what you borrow. With a loan, you have to reapply once you use up and pay back all the funds, but with a credit card, your credit line replenishes as you pay down your balance.

But borrowing on a credit card also poses some risks, the biggest of which is exposure to your personal credit. Applying for too many cards or carrying high balances on your cards can hurt your personal credit score, which in turn can impact your ability to qualify for business financing in the future. Carrying high balances also results in high interest expenses and can land you deep in debt.

Fortunately, if you understand the risks, you can incorporate smart credit card loans into your business’s financial plan.

credit-card-loans-for-business

The 4 Best Options for Credit Card Loans

Credit Card Loan Option 1: Using a Rewards Credit Card for Daily Expenses

Best For: All small business owners

One common reason that entrepreneurs use credit cards is to pay for daily business expenses, like buying supplies and paying vendors. In this case, borrowing on one or two credit cards can serve as a substitute for a short-term working capital loan. You charge the expenses to the card and pay back the balance (ideally, in full) the following month.

Credit card issuers often sweeten the deal by offering rewards points and cash back. We recommend choosing a card with rewards that reflect the types of expenses you have.

Travel a lot? There’s a business credit card for travel perks. Spend a lot on social media marketing and online ads? There’s card for that, like the Chase Ink Business Preferred. Spend a lot of time wining and dining clients? The Chase Ink Business Cash card earns you cash back on restaurant purchases. Essentially, rewards land free money right in your pocket, which you’ll only get from a credit card loan. Choose the right card to maximize those rewards.

In conjunction with rewards, many business credit cards also offer an introductory 0% APR period for several months, which essentially converts your credit card into an interest-free short-term loan. After the introductory 0% period, a variable interest rate will set that depends on market rates and your creditworthiness. Even once your usual rate sets in, the rate is often lower than rates on online business loans. So, using a credit card to pay for daily expenses, even if you carry a little bit of a balance each month, can be smart.

The American Express Blue Business Plus offers a combination of 0% APR for the first 15 months and 2x rewards points on your first $50,000 of purchases.

Credit Card Loan Option 2: Using a Secured Credit Card on the Road to Other Financing

Best For: Business owners with poor credit or a short credit history

Although there are credit cards for borrowers with lower credit scores, the best options typically top out at around a 600 FICO score. Plus, interest rates are much higher for applicants with weaker credit profiles.

Secured credit cards make credit card loans available to people who need to build credit. These cards require you to put down a cash deposit, which is usually equal to your credit line. For example, putting down a $500 deposit means you get a $500 credit line on your secured credit card. Secured credit cards can be a stepping stone to ordinary, unsecured credit cards and other types of financing, such as bank loans and SBA loans.

Just like an ordinary credit card, you incur interest on a secured credit card if you carry a balance. But if you use the card responsibly and pay back at least the minimum balance each month, the issuer will ultimately return your deposit. Most importantly, responsible usage builds credit. When your credit becomes high enough, you can graduate to a regular credit card or a business loan.

The Wells Fargo Business Secured Credit Card lets you rebuild business credit while also earning 1.5% cash back on purchases. Or look into the Capital One Secured Mastercard. It’s a consumer secured credit card that helps you build your personal credit history, which is key when applying for business loans.

Credit Card Loan Option 3: Taking a Cash Advance on Your Business Credit Card

Best For: Business emergencies

In an ideal world, you should use your business credit card for planned or routine business expenses. But things aren’t always predictable in business, and you might encounter an emergency that requires immediate cash to fix. For example, your usual supplier might be unavailable, and you might need to pay more to fulfill an order on short notice. Or, a weather-related disaster could rack up costs for your business.

Cash advance credit card loans were designed for these kinds of emergencies. A cash advance is a short-term loan from your credit card issuer. You can access the advance from an ATM or the bank. In most cases, the credit card company won’t let you borrow money in the full amount of your credit line—rather, they’ll cap your withdrawal at a portion of your credit limit.

We don’t recommend taking a cash advance unless you have a business emergency, no other alternatives, and can pay off the advance very quickly. Interest rates on cash advances are higher than on ordinary balances and start accruing daily the moment you take out an advance. Based on the cards on the Fundera platform, the cash advance interest rate on business credit cards usually is around 25%. There’s also a one-time cash advance fee of 3% to 5%.

A better alternative to cash advances for emergencies is to get a business line of credit that you can draw cash from on an as-needed basis. The money sits in your account until you need it, and you only need to pay interest on money that you draw from the account. Banks offer lines of credit, as do alternative lenders.

Credit Card Loan Option 4: Stacking Business Credit Cards

Best For: Businesses that need a very large credit line

One of the many reasons to use a business credit card? It’ll come with a higher credit limit than your personal credit card. In a 2015 Experian survey, business owners had a combined credit limit of $56,100, while consumers had a limit that was less than half of that. But, high credit limits on business credit cards are generally reserved for borrowers with the best credit. What if you need a higher limit than the issuer will approve?

Business credit card stacking is a special type of credit card loan that could help. Some providers claim to help startups access over $100,000 in financing through business credit card stacking. These companies will apply for dozens of business credit cards on your behalf so that your total credit limit gives you big spending power.

These providers will also help you shift balances among the cards to minimize your borrowing costs. For example, let’s say you take a cash advance from one card. The provider would then help you transfer the balance on that card to another card that offers a 0% or low APR on balance transfers for 12 months or longer. You’d keep taking cash advances from the first card and shifting your balance among the remaining cards until you use up your available credit. At that point, you would have to pay back at least the minimum balance on each card. This functions like a short-term low interest or 0% interest loan, divided among several credit cards.

This strategy gives you access to a large amount of cash when one or two cards won’t do the trick.

However, we don’t recommend stacking credit cards. This strategy can “trick” you into taking on a larger credit line than you can afford to pay back. Once the 0% or low interest rate intro period comes to an end, interest accrues on a daily basis. And if you can’t afford to pay back what you borrowed, you can end up under a huge pile of debt. Plus, shuffling balances and keeping track of payment due dates for multiple cards isn’t easy unless you’re highly organized.

If you need a large credit limit, the best advice is to build your credit score and apply for a charge card. A charge card, unlike a credit card, has no preset spending limit. The catch is that you have to pay back your balance in full each month.

Check out the American Express Business Plum Card, a charge card with no annual fee. The card also offers rewards points if you pay your balance early each month.

Tips for Using Credit Card Loans for Business

As you can see, business credit cards aren’t a one-size-fits-all tool. There are different ways to use credit card loans based on your business’s goals. But some tips for credit card usage apply across the board, no matter what type of credit card you use and how you use the card as a financing vehicle.

Here are some tips when using credit card loans for business:

1. Try to keep a low or zero balance.

Whenever possible, aim to keep a low balance on your credit card, or, even better, pay off the balance in full each month. Balances accrue interest daily, so what starts as a low amount can end up growing bigger and bigger.

Plus, the amount of money you owe to lenders and credit card companies is the second biggest factor after payment history that impacts your credit score. Keeping your balances low will boost your credit score.

Ultimately, you should treat your credit card like you would a loan. Just like you have to make regular installment payments on a loan, you should obligate yourself to paying at least the minimum monthly payment.

2. Choose issuers that report to business and personal credit bureaus.

When opting between a business credit card and consumer credit card, the better choice depends on your goal. If your goal is to get the highest credit limit possible, consider a business credit card. Most issuers grant more spending power on business credit cards.

If your goal is to improve your personal credit score, then you might consider using a consumer credit card. But using a personal credit card for business purposes gets tricky, as it defies the best practice of separating your personal and business finances whenever possible.

Even better? Choose a business credit card issuer that reports card activity to the consumer credit bureaus. At this time, only Capital One business cards appear on personal credit reports. Personal credit is key to qualifying for bank loans, SBA loans, and other top tier business loans, so if that’s your eventual goal, start your search with a Capital One business card.

Of course, keep in mind that if you default on payments, then almost all business credit card issuers will report that negative activity on your personal credit report.

3. Take advantage of cash back and rewards.

Arguably the best part about using a credit card is that you can earn cash back and rewards on purchases. That’s like free money in your pocket, and if you have two or three cards in your arsenal (the average American has three credit cards), you can use the card for each purchase that will yield the highest rewards. Even if you can pay for something with cash or check, consider paying by credit card if you’ll earn rewards on those expenses.

Eric Stanton, CEO of Stanton Pools, has negotiated credit card payments with all of his company’s vendors:

“Credit cards are an essential part of our swimming pool cleaning and remodeling business. We use them to pay for everything from job materials for replastering a pool to advertising our weekly cleaning service on Google, almost entirely with our Capital One Spark miles rewards card. We often spend over $30,000 per month on this card. We almost always pay the balance off each month, but will occasionally carry a portion of it to the following month.

The best way we’ve used our card is by negotiating with our vendors to pay them with it—last year alone, we earned over 800,000 miles! Because almost none of our spending is at the types of retailers for which business credit cards normally offer higher rewards (e.g., office supply stores), we love the Spark miles card. We earn 2% on every single purchase. Last year, we used our miles to travel to Mexico, the South Pacific, and five countries in Europe. Earning more miles has definitely been a strong motivation to keep the business growing and thriving.”

Business spending really adds up, and when you’re earning rewards on that spending, the rewards really add up too!

4. Don’t rely on credit cards for everything.

Credit card loans can be a great source of capital, but they aren’t right for everything. For instance, if you want to purchase a piece of equipment for your business, an equipment loan is probably a better way to finance that purchase than your credit card. Using your credit card for something like that wouldn’t be ideal. You’d end up using a large chunk of your credit limit, and would carry a huge balance for a long time.

Similarly, to finance long-term growth, a true business loan like an SBA loan is better. Credit cards can supplement other business loans, but oftentimes, entrepreneurs need multiple types of loan products in their arsenal.

Credit Card Loans Can Be a Convenient Way to Start or Grow a Business

Credit card loans can be a flexible source of cash when you want to start a business or grow an existing business. Keep the following tips in mind when deciding how best to use a credit card for your company:

  • The most common way to use a business credit card is for day-to-day expenses. A rewards credit card can provide working capital for daily purchases.
  • If your credit isn’t very strong, then you might need to work your way up to an ordinary credit card by first using a secured credit card.
  • We recommend taking a cash advance from your credit card only in emergencies, as the fees and interest rates can be high.
  • Business credit card stacking can give you a very high credit limit, but there are risks to shuffling balances among several cards.

Ultimately, don’t write off plastic as a form of financing for your business. Many entrepreneurs find that credit cards helps them pay for daily purchases and achieve long-term goals.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

Priyanka Prakash

Staff Writer at Fundera
Priyanka is a staff writer at Fundera, reporting on business financing, law, and news. Previously managing editor at Fit Small Business, she's also a licensed attorney who served as general counsel at a Y Combinator tech startup. She loves helping entrepreneurs launch, run, and grow their businesses.

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