Should You Use Credit Cards To Help Fund A Start Up Business? Positives & Negatives
Let’s take a look at the positives and negatives of using credit cards to help fund a start up business.
Starting a new business is always more expensive than you plan on. There are the fit out costs, staffing, goods and property leasing costs. But then there are often unexpected costs that catch you out.
Positives Of Using Credit Cards For Your Start Up
Having ready access to some additional funding can be a lifesaver, so that you can get the business moving and not delay the launch. Delays can be expensive in lost business, but also credibility wise with your prospective clients.
Buy Now Pay Later - If you are savvy about using credit cards, and pay the full balance before the due date, you have free use of the money, often over a period of months. This buys you some extra time, and doesn’t tie up your existing funds.
All Costs Collated On One Statement - This makes it easy to track your credit card expenditure, and for the start up stage, allows for forward planning as well.
Bridging Finance - Depending on your line of credit, credit cards can be an interim measure if you are waiting on a bank loan to be finalized. If everything else is in place, and you don’t want to miss out on a lease or business opportunity, a credit card line of credit may be a good temporary solution. Even if you have to pay interest over a short period, it may still be worth the cost. This is something you will need to weigh up.
Like any business transaction, be sure to research any credit card agreements carefully, so you know exactly what you are getting into.
Negatives
The potential advantages of credit cards to help fund a start up buisness, can all fall in a heap if you are not careful.
Misjudging Ability To Repay - Business owners are often confident they can beat the high interest charges by repaying the full balance before the due date. What happens if things don’t go to plan? Interest charges quickly build from one month to the next and people get themselves into a financial hell hole.
Fine Print - Have you checked the fine print on your credit card contract? Do you know the implications if you cannot pay or if you are late with a payment?
Having Too Many Credit Cards - Some business owners get themselves into a tangle by trying to juggle a number of credit cards. They use one to pay off another. This is not good business sense and is a sure path to financial pain.
Tendency To Use Credit Cards As First Option - When it trouble, or needing extra funds, credit cards are often the first port of call. For significant amounts, check if there are other more viable options you can negotiate e.g. short terms loans or extending your overdraft for a set period.
What’s The Verdict?
Used sensibly, credit cards can be a useful source of money to help fund a start up business. One of the main advantages of using a credit card is also its main pitfall. It’s handy and it’s easy, (often too easy) to use. Be sure to keep track of how much you have spent so there are no suprises when the credit card statement arrives.
Credit Card Tips & Cautions
Not all credit cards are the same. To find the best business credit cards, do your research and pay close attention to the details. Credit card companies often like to trick you by inserting hidden fees (especially for balance transfers).
When you’ve chosen the right credit card for you, the rest is down to being savvy with using it. Most of the potential negatives come not from the credit card itself, but from mishandling its use. If you want to use credit cards to help fund your start up busines, make sure the credit card works for you.
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2 opinions for Should You Use Credit Cards To Help Fund A Start Up Business? Positives & Negatives
Mary Emma Allen
Jun 9, 2008 at 7:45 am
Nice balanced list of the pros and cons, Yvonne.
Yvonne Russell
Jun 10, 2008 at 8:16 am
Thanks Mary Emma. Credit cards can be a boon if used wisely. They can also be a curse if they get out of hand.
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