Blog » Business Tips » Financing Your Business with Credit Cards

Financing Your Business with Credit Cards

Updated on January 17th, 2022
Financing your Business

Many entrepreneurs struggle to keep their businesses financially afloat, especially in the early stages. Before financing your business, it’s a good idea to find a payments platform that can help streamline and organize your business financials. This way you can easily track any and all income and expenses.

There are plenty of alternative financing options to traditional VC and or angel investors. One alternative is using credit cards for your various payment needs. Before you start racking up the credit, reference these pros and cons of financing your business with credit cards.

Advantages of Financing with Credit Cards

Perks and Rewards: First and foremost, business credit cards offer perks and rewards that no other financing option will. Typically these rewards are much more enticing than those of personal credit cards. Since banks and card issuers are assuming you’ll be spending much more on a business card, they’ll sweeten the deal in regards to your perks. Typical rewards are airline miles, special hotel deals, warranties, and itemized reporting features. Shop around for the best small business credit cards so you can maximize your rewards.

No Collateral: Another great aspect of using a business credit card is that you won’t need to provide any collateral. Loans and other financing agreements come with various contingencies such as collateral that may put your personal assets at risk. If you’re financing through a debt investor, you’re giving them leverage if you ever fall behind on your payments as they can force your enterprise into bankruptcy.

Retain Your Equity: Every entrepreneur’s dream is to see their millions of founders shares turn into millions of dollars. Assuming you still own millions of shares at that time. Interested investors will typically ask for a large amounts of equity in early financing rounds as they are assuming the most risk. If you’re looking to get by on small expenses without raising an equity round, credit cards are a perfect way to do so.

Disadvantages of Financing with Credit Cards

Not Enough Capital: While business credit cards often have much higher spending limits than personal ones, you won’t be able to stretch your credit out too far. Credit cards are often used best when paired with alternative financing options. They often times don’t provide the necessary capital to fully fund your business growth.

Personal Financial Liabilities: When applying for a business credit card, banks and card issuers will reference your personal finances. If you ran into financial trouble in the past or have a history of bad credit, odds are your rates and options will take a hit if you’re even granted a credit card at all. Inversely, if you begin to miss payments for your business credit card account, your personal credit score will take a hit. This will negatively affect your ability to apply for loans, credit cards, and even jobs in the future if you decide to close up shop on your previous business.

Less Protection: Often times business credit cards don’t offer the same level of protection as consumer cards. For example, business credit cards may not offer the same level of services when disputing charges. Make sure you fully understand and review the level of protection that comes with your business credit card.

Final Thoughts

When looking to finance your small business, credit cards will always be an option. Just make sure you’re fully aware of costs, benefits, terms of usage, and liabilities before applying for a business credit card.

Chalmers Brown - Former CTO of Due

Chalmers Brown - Former CTO of Due

I'm Chalmers Brown and former CTO of Due. I'm a big fan of technology and building financial products that help people better their lives. I have a passion for financial products that help people. I build complex financial infrastructure protocols that help scale financial companies. They are secure and support millions of customers worldwide.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.
Categories

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More