Pros and Cons of Using Credit Cards to Finance a Small Business ...

Posted on April 5, 2012 by Jennifer in Business Credit Cards, Credit Card Tips

Are you thinking about starting a small business? If so, do you know how you?ll finance your new startup? You have a number of options including savings, investors, business loans, and even credit cards. Let?s focus on that last option.

You might consider applying for a business credit card to pay for some of your startup costs, especially if those costs are low. Or you might want to use an existing personal credit card so you don?t have to wait for a new card before you get started. Technically you can do either of these things. But should you?

To help you decide if credit card financing is right for your new small business, let?s look at some of the pros and cons.

Pros

• You might already have an available credit limit that would cover your needs, so you don?t have to apply for new credit.
• You might have an easier time getting approved for a small business credit card than a traditional business loan.
• If your card is a rewards card, you might get something in return for spending money on the business (something you were going to do anyway).
• Credit cards can easily be used to make online purchases or pay most of your vendors.

Cons

• Credit cards often come with higher interest rates than traditional loans. If you use one, at least look for a low interest card or one sporting a low introductory rate if you?ll pay off the startup expenses quickly.
• If you want to use an existing credit card, you put your personal credit directly at risk if the business fails (although you might have to do that with a loan anyway if the business has no credit history of its own yet).
• You might not get approved for the credit limit you need to cover your startup expenses, and you won?t know your credit limit until after you apply.
• If you use one of your personal credit cards, you decrease the amount of credit available to you for personal charges.
• Credit cards can feature higher fees than traditional bank loans, in addition to potentially higher interest.

Can you think of other reasons to consider credit card financing for a new small business? How about reasons not to rely on credit card funding? Leave your thoughts in the comments.

Jennifer Mattern is a professional blogger writing for CreditCard.net and other online publications. In addition to working as a freelance writer covering business and finance issues, she is also a Web publisher and e-book author.

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