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The Pros and Cons of Using Credit Cards to Fund Your Business

Sarita Harbour

Sarita Harbour

Sarita Harbour is a Small Business & Entrepreneurship Columnist at Fundera and a freelance writer and entrepreneur specializing in business and personal finance. A former financial advisor, Sarita has over a decade of experience in banking. Her work appears online at sites such as Forbes, Investopedia, Yahoo!, Capital One Spark Business IQ, and Business News Daily. Connect with Sarita on Twitter @saritawrites.
Sarita Harbour
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Using credit cards to fund your business is a a popular financing option for many new business owners. But is a really a good idea?

Well like most things related to your business—it depends.

Here we’ll explore whether or not you should really be using credit cards to fund your business.

The Best Credit Cards to Finance Your Startup or Small Business

Before we dive into the pros and cons of using credit cards to fund your business, we’ll outline the best credit card options available, in case you’re just hunting for some quick suggestions.

If you’re going to use a credit card to fund your business, it should be one with a 0% Intro APR. And there are plenty of great options on the market.

Here’s a quick rundown of the best credit cards to fund your business:

The American Express Blue Business Plus


In our opinion, the American Express Blue Business Plus is hands-down the best intro APR card on the market. At 15 months, it currently offers the longest 0% intro APR period available for any business credit card on the market.

What’s more—you’ll get 2x points on any purchase up to $50,000. That makes this card the most flexible rewards card of the bunch.

The Chase Ink Business Cash


With a 12-month 0% intro APR period, the Chase Ink Business Cash credit card is nothing to sneeze at. Along with its long 0% APR intro period, the Chase Ink Business Cash card has some pretty epic perks.

You can earn cash back rates of 5% for the first $25,000 spent at office supply stores and on cell phone, landline, internet and TV services. You’ll earn 2% on the first $25,000 spent at gas stations and restaurants. And you’ll earn 1% cash back on all other purchases.

The Capital One Spark Cash Select

The Capital One Spark Cash Select may only offer a 9 month 0% intro APR with no annual fee—low compared to it’s Amex and Chase counterparts—but the beauty of this card is its simple cash back rewards. (See the issuers’ terms and conditions for the latest APR information.)

You’ll earn 1.5% cash back on every purchase, with no caps or limits—simple as that. If you’re looking for a no-muss, no-fuss cash back rewards card with a 0% intro APR offer—this is a great card to consider.

The Capital One Spark Miles Select

The Capital One Spark Miles Select has the same great 0% APR intro period of 9 months with no annual fee, plus you’ll earn 1.5 miles for every dollar you spend.

Not to mention the one-time signup bonus of 20,000 miles when you spend $3,000 in the first 3 months. This is a great card if you know you’ll be doing a lot of traveling.

Now that we’ve outlined some of your best credit card options, let’s dive into the pros and cons of using a credit card to fund your business.

The Pros of Using a Credit Card to Fund Your Business

Whether it’s your personal credit card or a business credit card, using credit cards to fund your business comes with some definite benefits.

1. It’s Easy

If you already have a credit card with available credit, you’re all set. Credit is immediately available with no work on your part—it doesn’t get any easier than that! If you don’t have a business credit card already, you should get one to keep your personal and business finances separate.

2. Convenience of Revolving Credit

Like a line of credit, a credit card is revolving credit. This means you can borrow up to your credit card limit, pay your balance off—or down, at least—and borrow again. That is, as long as you make your payments on time, your balance remains under your credit card limit, and your account is in good standing.  And you don’t need to reapply each time you need more money, the way you would with a business loan.

3. Keep Equity in Your Startup

You retain your equity. No need to offer shares in your business to bring on outside investors who’ll get a slice of the pie in exchange for their investment dollars. When financing your business with a credit card, you can keep your full ownership position.

4. Competitive Rates (Maybe)

If you have a low-interest rate credit card your borrowing rate might actually be lower than that charged by some business loan rates. Even better, you could find and qualify for a 0% time-limited introductory offer credit card (like the ones we mentioned above).

If so, you could finance your business without being charged interest for several months, or even up to a year. Just make sure to read the fine print of these 0% offers carefully!

5. Hit the Rewards Bonanza

If you already have a rewards card and you start using it for startup purchases, you’ll soon be racking up rewards like crazy. If you’re still just considering using a business credit card in place of a loan, take a look at some of the business credit cards rewards programs out there—you might be surprised.

6. No Collateral Needed

Another reason startup founders might use a credit card: they don’t need collateral for a credit card. And when you’re launching a startup, collateral can be hard to come by.

7. Easily Track Startup Funding Expenses

If you’re using a business credit card, buying everything on the card is a simple way to track your startup funding expenses. This helps simplify bookkeeping and save time—and money—on accounting come tax time.

8. Establish Good Business Credit

Using credit cards to fund your business is one way to establish business credit and separate your personal and business expenses. You can then use the card as a step to applying for other business loans that offer lower rates.

The Cons of Using Credit Cards to Fund Your Business

Though convenient, using credit cards to fund your business is a risky move for several reasons—and they’re serious ones that can have long-term financial consequences.

1. Unlimited Liability

Whether you’re using your personal credit card or a business credit card, if credit cards are your main form of financing and your business goes belly-up, guess who’s held responsible for all of the charges?

That’s right—you.

After all, credit cards generally require a personal guarantee, which means your credit card company has the right to recover your entire credit card balance. So they can go after any or all of your personal assets to get their money—your home, personal savings accounts, even your kid’s college fund. In a nutshell, if you finance your business with credit cards and it flops, you could lose a lot more than your business.

2. Co-Mingled Expenses Bad for Personal Credit

Using a personal credit card to fund your business can lead to a tangled mess of transactions. There’s no distinction between business and personal finances: that’s a bad thing.

If you run into cash flow issues trying to get your startup off the ground and you start missing payments, you could damage your personal credit score—and that might hurt your chances of getting approved for both personal credit (like a mortgage) or further business credit (like an expansion loan).

3. Credit Cards Have Relatively Low Limits

If you’re only using credit cards to fund your business, you’ll be constrained by your credit card limits. Generally, the highest credit card limits won’t be greater than $50,000, while small business loans can reach into the millions. Your startup expansion plans might exceed your startup financing.

4. Expensive in the Long-Term

Even if you get one of those time-limited 0% credit card offers mentioned above, what rate will you pay when the offer ends?  Credit cards don’t usually wind up the cheapest way to finance a startup.

While a low-rate card might have you paying just under 13% in interest, many credit card rates are closer to 20%—an expensive burden to shoulder when you’re first starting out. If you have good credit and a solid business plan, consider applying for a cheaper online business loan to fund your startup.

***

With eight reasons you should be using credit cards to fund your business and four big reasons not to, only you can decide which options best suits your needs. But before you do, take a look at your other financing options, like credit lines, term loans, or startup loans from an online alternative funding company. It’s fast, easy, and worth a shot to get your startup launched on the right financial foot.

 

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.
Sarita Harbour

Sarita Harbour

Sarita Harbour is a Small Business & Entrepreneurship Columnist at Fundera and a freelance writer and entrepreneur specializing in business and personal finance. A former financial advisor, Sarita has over a decade of experience in banking. Her work appears online at sites such as Forbes, Investopedia, Yahoo!, Capital One Spark Business IQ, and Business News Daily. Connect with Sarita on Twitter @saritawrites.
Sarita Harbour

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