Financing a small business and the process of acquiring capital in order to do so can be a minefield, which is why educating oneself is so important. With the internet and the depth of the resources available to a budding entrepreneur these days, there is no excuse not to be savvy when it comes to small business finance. In general, business owners will finance their company in one of two traditional ways: equity financing, which involves the selling of ownership in exchange for capital, or debt financing, such as the acquiring of a small business loan. Of course, there are grey areas between the two, but there is another option that many look to when funding their small business: the credit card.
“With the internet and the depth of the resources available to a budding entrepreneur these days, there is no excuse not to be savvy when it comes to small business finance.”
Along with loans from relatives and interested parties, credit cards are among the most popular forms of funding when it comes to small businesses. This is especially true for startups with only a handful of employees, since costs will not be as high so are comfortably covered by a card’s credit limit. Banks often market such cards as a line of credit, but since most businesses are sole proprietorships – and since banks will always analyze your personal credit rating before lending – there is little difference here between business credit and personal credit.
Why a small business credit card?
Owning a small business is always a risky venture, especially given the turbulent economic seas we are currently sailing. It is therefore of utmost importance to keep personal finances out of the way when it comes to business funding. Acquiring another credit card and further debt can be a frightening proposition, but small business credit cards can be a rewarding option for many entrepreneurs – for some, it may even be the only option. It is therefore important to read up on and understand the various advantages of a small business credit card before making taking the plunge.
Small business credit cards over personal credit cards
Similarly to the above, some small business credit cards do not offer much of an advantage over traditional personal credit cards, so shopping around can become a critical process. Below are some advantages that an entrepreneur might find when picking a small business card over a personal card:
- Higher spending limits is one aspect that separates small business credit cards from personal credit cards. Providers understand that costs can be higher, therefore offer a higher credit limit so as to cover these costs.
- Multiple credit cards is another aspect that sets small business credit cards apart. This is offered because small businesses are typically comprised of several owners, and all may need access to funds simultaneously.
- Perks and rewards are something we all associate with credit cards and are often what consumers look for when shopping around. Choosing a small business credit card ensures that these rewards suit your business rather than you.
- Building credit rating is important in that many approach small business financing with bad credit, therefore need to repair their rating while also borrowing. Credit cards allow this, but only if repayments are met on time.
Small business credit cards vs. Small business loans
Ensuring that you acquire a small business credit card rather than charging business expenses to your personal card is helpful, but why not a small business loan? Here are some advantages of small business financing via card rather than a loan:
- Bad credit is a typical hurdle that business owners face when it comes to applying for a small business loan. A good rating is essential when applying for a loan, but not so with a small business credit card.
- Similarly, it is much easier to apply for a credit card than it is a loan. Credit cards can be approved in a matter of days, whereas loan applications are often drawn out and arduous processes.
- Credit cards offer a line of credit rather than a lump sum, limiting the amount of available funds, but introductory rates mean that you can often obtain credit with a very low initial interest rate.