How to fund a small business with a credit card

Use Credit Card to Fund Your Small Business: Follow These 6 Rules To Enjoy Maximum Benefits!

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6 Simple Rules To Wisely Fund a Small Online Business With a Credit Card

Are you planning to use credit card to fund your small business? You have taken quite a smart decision! However, it is important to know the key aspects of credit card financing before you decide to take the plunge. Before I share the tips to fund your small business with credit card, here I would like to narrate an interesting story.

Once a young shareholder had an interesting conversation with Warren Buffett, which went like this, “I read in a book that you prefer talking to young people about life and financial concepts because we still have time to implement them. Can you please share some of the concepts with us?” Mr Buffett responded by sharing three valuable pieces of advice about life and finance, one of which is “Don’t get into debt!”

That perception however has changed over years as young entrepreneurs are no more hesitant to use credit card to fund their small businesses!

Before I proceed to discuss the ways to use credit card to fund your small business, let’s first understand the key benefits of this financing option.

Why Use Credit Card to Fund Your Small Business?

Business credit cards are rated quite highly as a favoured source of cash, right after short business loans and business lines of credit.

More than 67% small business owners have separate business credit cards though only 24% use it solely for business expenses.

One prime benefit of credit card financing is flexibility. For small business owners, the credit card can prove to be extremely handy in maintaining a steady cash-flow and settling short-term business expenses.

And all these you can do without experiencing the hassles of a bank loan.  The other benefit is that a business credit card help in building up your business credit which later helps in securing a bank loan.

Do You Know The Negative Aspects of Credit Card Financing?

So you are convinced to fund a small online business with a credit card? Hey wait! Don’t overlook the potential dangers of financing a business with plastic money. If you are fail to identify the best credit card matching your small online business requirements, then you might end up with high interest rate burden, from which it will be tough to recover. This is why it’s so very important to know exactly HOW to smartly use credit card to fund your small online business.

Get A Separate Credit Card For Business Expenses – The First Rule to Use Credit Card to Fund Your Small Business

use a separate credit card for business

If you are the first-time entrepreneur planning to fund a small business with a credit card, then confess this faux pas- you actually used personal credit card to jumpstart a company! Of course, you are not alone. It is a common blunder committed by many, especially solo entrepreneurs.

When it comes to arranging business fund, you should learn to think long-term. If you have decided to use the plastic money, then apply for a business credit card right now. The benefits? 

Why Do I Need a Separate Business Card To Fund My Small Online Business?

As already discussed, a business credit card is a great tool to build your business credit score which can be later used to secure bigger revolving credit (line of credit) from banks and financial institutions. Now you must be wondering why what’s the need to explore other loan options when I can easily fund my small business with credit card. Yes, you will feel the need of a line of credit as your business starts to grow. Also a steady credit score helps establish your business credibility with customers, suppliers, vendors and the like.

The second benefit that you get to enjoy as you decide to fund a small online business with a credit card,is safeguarding your personal credit. How? There might be lean months when you fail to pay the credit card dues in time, due to your company under performance. Now if you use the personal credit card for business purpose then the non-payment can negatively impact your personal credit score.

The third benefit is that you can enjoy certain tax benefits, if you decide to use credit fund your small business. The monthly interest that you are paying is deducted from the business income, which in turn can bring down your business tax liability. However it is always advised to check out the rules and regulations of your particular country and region to be sure of the tax benefits.

Use Credit Card To Fund Your Small Business Provided It Offers Business-Friendly Features With Greater Flexibility

Now that you have decided to use credit card to fund your small  business,you must have worked out a plan about how to use the plastic money, what all business expenses you need to cover, etc. Also it’s quite logical to look for a business credit card that offers better features, low interest rates, nominal maintenance charges and other benefits.

use credit card to fund your small business

Here are few key areas to check out before finalizing a particular credit card option for your business:

  • What are the joining fee and annual maintenance charges? (Few companies waive the charge totally for the first year and even for lifetime!)
  • Is there any option to enjoy interest-free credit period?
  • How flexible are the payment options?
  • What are the special benefits like cash-back, discounts, reward points, etc. and how long these offers remain valid?
  • Is there any limit/pre-condition to avail the waivers?

If research and analysis sounds too scary then you can try a comparison portal and let them find out the right instrument for you!

Fund A Small Business With A Credit Card That Offers Rewards On Business Spending

We all love it, special offers, bonus, reward points and discounts, don’t we! But when it comes to funding a small business with a credit card, prepare yourself to think practically.

Let’s explain with an example. You run an internet business and you don’t need to travel frequently for business purpose. Then it makes little sense to settle for a credit card that offers cashback on flight and hotel bookings. Rather you can chose the one that rewards you well on purchase of business merchandise.

Yes, diversity is one of the greatest benefits of plastic credit. You can pick up a great card from a multitude of categories, based on your specific business spending habits.

Take for instance the Business Moneyback credit card of HDFC bank that offers fuel surcharge waiver on transactions between INR. 400 to INR. 5000, subject to a maximum of INR.500 per statement.

A ride to the client’s office gets cheaper, isn’t it! Citibank Corporate Card is another great way to enjoy up to 55% savings across a range of business products and services, including car rentals, restaurants, hotel stay, etc.

Rule 4: Search for a business credit card which generously offers welcome and spending Bonuses

Look for welcome bonus and other benefits

Now that you are aware of the basic rules to use credit card to fund a small business,here’s one more point you will find interesting.

Your business credit card can take care of hefty spending requirements with generous offers of welcome and spending bonuses. Not clear? Let’s explain with an example.

How To Enjoy Credit Card Benefits While Spending?

Suppose you want to buy the latest computer, several other electronic gadgets and an expensive software to help in your internet business. Not to worry about the huge expenses!

While you swipe the credit card to make these purchases, you also earn big reward points, once the purchase exceeds a certain amount.

For instance, the Business Platinum card from American Express lets you earn 50,000 points once your business spending reaches $10,000 in the first three months.  You can earn an extra 25,000 points on spending an additional $10,000 within the first three months of opening the account.

The bonus bonanza doesn’t end here! There are credit card companies that offer plentiful of spending bonuses. Once the annual business spending reaches a certain figure, you can earn good reward points.

Take for instance the Hilton Honors American Express business card. If you use the card for business purchases worth $15,000 in a calendar year then you can win the weekend night reward from Hilton Honors.

Plan Carefully If You Decide To Cancel A Business Credit Card

It might happen that one fine morning you decide that you don’t want to fund a small business with a credit card because there are better and cheaper options available!

Or it might happen that you want to start a new company and discontinue the existing one. So you plan to cancel the card. Plan the process a bit carefully as an abrupt closing of business credit card can seriously affect your business and personal credit scores. Plan Carefully If You Decide To Cancel A Business Credit Card

If you have signed a personal guarantee then an outstanding credit card balance can put your personal assets at risk.  And you don’t want that, do you?

Follow few steps to cancel the business credit card without putting your reputation at stake.

How To Properly Cancel Your Business Credit Card?

  • Get another business card, if you plan to switch to a new business.
  • Limit your spending on the new card.
  • Cancel the previous one after a few months of receiving the new business credit card. This allows your business’s total credit to stabilize.
  • Pay off your credit card dues and settle the matter with the bank/credit card company.
  • You can even call the concerned person and inform him personally about your inability to discontinue with the plastic card.

Sounds too complicated? Trust me this extra effort will return to you as dividend and secure your business’s credibility too!

Read The Fine Print Before You Fund A Small Online Business With A Credit Card

Read The Fine Print Before You Fund A Small Online Business With A Credit CardYes I know you definitely detest this suggestion! It doesn’t matter whether it’s a business credit card or a laptop purchase, the fact is none of us actually relish the idea of hovering the mouse to read and understand legal jargon. Yet when it comes to credit cards, the matter can definitely take a serious turn if you chose to ignore the fine prints that of terms and conditions.

It is highly advised that you have a thorough understanding of the surprise fees, penalty clauses, reward point redemption and all other important aspects.

Few Examples to Give you a Better Idea About Credit Card Fine Prints

The card claims: Interest-free credit!

The fine print:  You do not have to pay any interest on purchases for 20-50 days from the date of purchase.

The card claim: 5% cash back on buying grocery items!

The fine print:  The spending limit is $2000 per quarter.

If reading the entire ‘terms and conditions’ sounds too boring then try to seek out the features that you care about the most, e.g. APR, 0% interest period, sign-up bonus rules, reward program rules, loyalty program, etc. There are few credit card review sites that find out the credit card loopholes for you. Yet it is up to YOU, the business owner to seek out information that matters to you and your business the most.

To Conclude

Have you already swiped your credit card for business purpose or planning to do so? Do share your experience with us!

Or may be you are not very comfortable to use credit card to fund your small business? In that case you need to proceed  formally and apply for a business loan. Before doing so, do take a look at the key questions your banker might ask you!

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