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business funding
Although financing your business with credit cards is a two-edged sword - it may sounds like a good idea or a risky business financing - many people turn to credit cards to finance their business.
One major advantage why people use credit cards financing is due to the ‘right’ combination of moderately high interest rate and the amount of credit card limit with no-collateral attached.
Why people use credit cards to fund their business
No matter how risky credit cards-based business is, there are actually success stories of people using credit cards as their leverage.
Why people would use credit cards to fund the business? Most of the cases, they avoid bank loans, because they need collaterals and strict (and complex) credit application approvals.
Why people would not turn to their friend and family for borrowing money? Many says that borrowing from friends and family is more risky than using a credit cards, as it involves risking the relationship.
Real life case studies
My fellow businessman once told me that his friend start a business and seek for partnership to join the business, with a requirement that the partner should have credit cards - the higher limit, the better. Soon he formed an LLC, with 6 or 7 partners and a startup ‘investment’ value of $75,000 in credit cards fund. The last time I heard about him, his small business is doing great.
One more case - I have a relative who finance some of his businesses (Yes - he has multiple small businesses) with credit cards. Although his business involves high volume transactions with low profit margins, he insisted to use credit cards, mainly because of the point rewards - he said that, the reward itself is a ‘nice’ addition to the business’ profit.
The last case is very interesting to me - let’s dig deeper on my relative business plan.
The use of reward credit cards as your business cash flow account
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In dire need of funding for your business? There are several funding sources to consider - and each has its own plus and minus.
- Financial institutions - Plus: most common, trusted source of funding. Minus: usually involves collaterals
- Family and friends - Plus: easy to get. Minus: putting long-term relationship at stake
- Loan sharks - Plus: the easiest to get. Minus: very high interest rate
- Credit cards - Plus: easy to get, with many perks. Minus: Many hidden charges for the unaware
- Venture capitals or angel investors - Plus: You might get management help from them. Minus: Very hard to find or to qualify.
For many people, using credit cards for business is common, due to the fact that the today’s credit card business is lucrative, mainly targeting consumers.
In today’s numerous, interesting, credit card offers - usually with the keywords of “FREE” and “Low APR”, It’s tempting to have a credit card or two; Especially if you business needs other source of funding.
However, you must take heed of what financial experts tell you - use your credit cards wisely or else, consider not having one, at all.
Using one without the proper knowledge will leave you with bad debts, that will eventually damage your credit reputation - thus, it’s becoming harder to obtain more funding in the future.
There are many online, legitimate, resources on credit cards to learn from. You can find info on Credit Card APR or looking for a debt relief grant from the Net.
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