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What Are the Pros and Cons of Financing Your Small Business Using a Credit Card?


Before a business can finally stand on its feet, a lot of challenges are expected on the way, many of which involve capital. A credit card can be a considerable way to finance certain aspects of your business, but only when used correctly in most cases. 

With this in mind, a good way to tell whether or not a credit card is the right option to finance your business would be to weigh the merits against the demerits.

So, if you’re considering getting a credit card to cover some of your business costs, read on to learn the pros and cons of doing so.

The Pros of Using Credit Cards for Business 

Using a credit card to finance certain costs of your startup or established business can come with many advantages. Some of the perks of using plastic borrowed money for your business might include:

No Collateral Is Needed: 

Unlike most conventional business loans, you may not have to put your business equipment, inventory, or property in the line to get a credit card. A credit card is a form of unsecured loan that’s usually offered based on the borrower’s credit score and income/revenue.

Competition: There Are Many Better Deals Out There!

The credit card market is pretty competitive these days, with many banks, credit unions, and other lenders flocking the market with uniquely irresistible deals on their offerings. Some will even partner with airline companies, retail chains, hotel brands, tour agencies, and even gas stations to offer discounted deals to their esteemed customers.

While these can benefit your business, here are some things you can do to maximize the impact:

Make Sure You Get a Low-Interest Credit Card 

Much like any other loan, it pays to consider the interest rates before getting a credit card for your business. On top of low interest rates, some credit card issuers will even have unique rewards and discounts that might benefit your business. This is why you might want to get a credit card from SoFi or a similar provider if you’d rather not pay an annual fee or one.

Credit Card Financing Won’t Risk Your Equity 

In other words, by getting a credit card, you don’t run the risk of losing your equity if things go wrong in the future. It doesn’t mean giving a portion of your company’s control to another person or entity.

Cons of Using Credit Cards for Business 

Borrowing money from a credit card to finance your business also comes with a few downsides. Some of these include:

A Potential Risk to Spoil Your Credit Score:

Borrowing through a credit card can sometimes negatively impact your credit score, which could ultimately make it difficult for you to get bigger loans for your small business in the future. This could, in turn, stall your business’s growth.

The High Cost of Borrowing Money through a Credit Card:

The annual fees, additional costs, and the fees involved in credit card financing can also put a serious strain on your budget. Since it could also encourage unbudgeted expenses, using credit cards for business expenses could even leave you struggling to repay the debt in the worst-case scenario.

Moreover, many lenders will consider factors like your revenue, experience in business, bank statements, and other documentation before assigning a limit to the credit card that you qualify for.

Some of the limits assigned may not be all that beneficial to your business. This emphasizes the need to shop around after careful consideration to decide if a credit card is really what you need to solve your business’s financial needs.

Small businesses can benefit in many ways from using credit cards, especially as they grow. However, a credit card might not always be the best financial tool to use in most business costs. And since they’re vital for various purposes, it’s advisable to pick a forgiving card in terms of things like annual fees, interest rates, or even late penalties for payments that run late.

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