Credit Card Financing for a Small Business Start-up
Start-up businesses often suffer from a shortage of capital to expand and may find it nearly impossible to secure a bank credit line on favorable terms. Business owners facing this dilemma will often turn to credit cards to finance the development stage of a new business venture.
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Get a Business Credit Card
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Business credit cards have tighter approval standards than personal credit cards. When you apply for a business card, the issuer will request some historical revenue and operating data about your company as well as require a higher credit score for the authorized user than typical for a personal account. Using a business credit card will assist in keeping track of transactions for tax preparation, especially for small businesses. Additionally, the terms of a business credit card are often more business-friendly than a personal credit card. Generally, the discounts and savings available with a business card are from merchants that offer business services versus consumer products, such as business office supplies or shipping services. When you open a bank account for your business, you may be able to request a business credit card as part of opening your account with the institution.
Collect Rewards and Cash Back
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Credit cards offer rewards in the forms of loyalty points that can be redeemed for travel or merchandise or even cash back. There is no reason you should sacrifice these items when you are making business purchases. Even if you cannot get a business card, make sure whatever card you are using has a rewards program. Cash is often tight for start-up businesses, so you can certainly benefit from the cash back rebates or points you can earn on purchases you were going to make anyway.
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Manage Cash Flow
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A business has a real need to properly and effectively manage its cash flow. Use your business credit card to maximize your short-term cash flow. If you are paying your card in full each month, wait until the statement due date to send in a payment -- this wait period can provide you upward of three or more weeks to hold onto your cash in the event of an emergency. You can always defer some of the balance on your credit card to the next month if you need to; but once you spend the cash, it is out of your account for good.
Understand the Personal Guarantee
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If you obtain a business credit card, you will likely have to personally guarantee the debts assumed by the business. That is, if you rack up huge business expenses on the credit card and then go out of business, the card issuer will likely turn to you to collect the unpaid balance. If possible, see if you can open a business credit card account without a personal guarantee. However, if the card issuer will not provide that exemption, understand that if something goes south with your business, the creditor can come after your personal assets.
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References
- Photo Credit businessman image by Jarek Miarka from Fotolia.com
