Should I Fund My Business with a Credit Card?
If you’re starting a business and looking for quick and easy financing, one source is as close as your wallet. Personal and business credit cards are an attractive way to pay for some of the bills you’ll face as a business owner, especially in the early stages when cash flow can’t always match expenses.
The easy access to money cuts both ways, however. It can help your business get started and get you out of unexpected financial jams, but it can also add a mountain of unsecured, revolving debt to your bottom line, which can be difficult to pay off and could prevent you from getting additional financing. Here’s a look at the pros and cons of using a credit card to fund your business.
The Pros of Business Credit Cards
It’s easier to get financing. You might think that a bank or credit union would be the natural place to get financing for a new business. In fact, nearly one in three U.S. adults polled in the National Foundation for Credit Counseling’s 2018 Consumer Financial Literacy Survey said they would check with a community or national bank, credit union or online lender for a loan if they were starting a business. Only 7 percent said they would use a credit card.
However, getting a new business loan from a typical lender is not easy, especially if you’re still developing your product and don’t have a sales history. Requirements vary, but according to Hal Shelton, certified mentor with the nonprofit business mentoring group Score, author of the book “The Secrets to Writing a Successful Business Plan” and an angel investor, banks usually want applicants to:
- Have a strong credit score
- Make a down payment, also known as an equity injection
- Pledge assets as collateral
- Have some experience in the industry
“If you want to open up a doughnut shop and never sold retail in your life, you’re unlikely to get a bank loan,” Shelton says.