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.


I'm Chalmers Brown and I'm the Co-Founder and CTO of Due. I'm a big fan of technology and building financial products that help people better their lives.

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