Using Credit Card Financing to Start a Small Business: When and How?

Availing of the conventional types of business loans is always a big hassle for most small businesses. Also, given the escalating interest rates on business loans, most startup small businesses are looking forward to other forms of financing options that are more flexible and help overcome the disadvantages of the business loans. A recent survey has discovered that over 60 percent of small businesses are using credit cards to finance their operations.

Here we discuss when a small business owner must turn towards credit cards to fund their business and how to use them for optimum benefits.

Credit card financing

What is the need?

In case of a startup business, the owners still do not have a business credit. Their personal credit cards mean they are liable as an individual for the debts they incur. If a business owner has run up a massive amount of debt in trying to fund their business, the situation certainly carries a huge amount of risk. Business credit cards do give some sort of protection.

However, startups do not have the likelihood of getting bank loans. Therefore the best way out is to move towards personal credit card funding. Now we discuss what factors the business owner must consider while resorting to credit card financing.

When does it make sense to go for credit card financing?

  • When you need is lesser than $50,000, and you find it is impossible to get a bank or SBA loan
  • You have not been in business for so long to qualify for bank loan or produce collateral
  • You need quick access to money which cannot be expected from a bank

What are the benefits of credit card financing?

Credit cards are more flexible. For example, a conventional loan lets you borrow a particular amount of money and pay a fixed amount month on month during the term of the loan. On the other hand, with a credit card, you can borrow as much or as little as you want each month based on the upper limit of the card. The minimum monthly payment is almost manageable.

Some credit cards come with a 0% interest during the introductory period. In fact personal credit cards provide longer zero interest periods when compared to business credit cards. However to qualify for this, you must have a good credit score.

Most credit cards reward the users for purchases. Some cards give away sign-on incentives. At times, business owners can consolidate the debts on several credit cards to a low interest or zero percent interest credit card. However, note that credit cards have variable APR.

Based on the market scenario, the borrowing costs of credit cards might swing over time. So exercise enough care to handle credit cards smartly.

Useful points regarding credit card financing

Credit card financing

Always treat your credit card as a loan and be prompt in making regular payments

While loans put you under the obligation to pay regular installments, the flexibility of credit cards might tempt you to pile up the balances. In this case, it is most likely that you will end up increasing your interest burden and the debts.

It might also affect your credit score

Doubling or even tripling the minimum monthly payment can help protect the credit score and also reduce the final amount you owe.

Use a credit card only for essential purposes

It is advisable to keep the balance at 30% or even lesser off the credit limit and try to pay more than the minimum monthly payment. Exercise the balance transfer option to consolidate your debts and make payments on one card with lesser interest rate. However, check whether the balance transfer fee works out profitably.

Several good credit cards come with no annual fee

If such cards come with lesser interest rates, then you are so lucky. If you get a credit card in your name and have a business partner, you must be careful in availing of credit card financing option. Get signed on a written agreement to the end making the business partner also liable for the debts accrued on the card and specifying what portion of the business budget will go for paying off the credit card bill every month.

Choose a credit card that will help meet your business goals

Under several circumstances, credit card financing is a viable and convenient option to fund startup small businesses. However, know that all credit cards are not the same.

Always aim for 0% APR

Business owners borrowing on personal credit cards can benefit only if the cards come with 0% APR for a long period following the introduction and a low APR following that.

Find the one with no balance transfer fees

For transferring balances from other credit cards, find a card that doesn’t carry balance transfer fees. A credit card with cash back and attractive rewards program is a good option for day to day business expenses.


As you can see, there are many things to consider when choosing credit cards as your preferred method of small business funding, So, exercise the right option and reap far reaching benefits.