Starting a Small Home Business

Using credit cards to fund your home business

December 17th, 2007 Filed under: Uncategorized — Small Home Business Author

Using credit cards as a form of financing is a growing trend in the business world.  It is easier than getting a loan from a bank or a family member. In addition, obtaining a credit card and having direct access to the credit available is a quick process. Often, you may have an ability to utilize your newly assigned credit limit within 48 hours, whereas a bank loan could take weeks or months.  If you are starting a small business, and your credit report does not reflect a stellar payment history, this may be a simple answer to all your funding problems.  Exercise caution, there are many benefits and downfalls when it comes to using a business credit card.

Easy Access
When starting a new business, financing it with a credit card is a unique solution.  In addition to providing immediate finances, business credit cards offer some other perks that contribute to the success of a small business.  For example, it is extremely easy to monitor expenses this way, and some companies offer statements that are easily downloaded into a variety of accounting software.  Since the management of expenses and revenue is so critical to the early success of a business, a business credit card may set the stage for a good start. 
 
The Fine Print
Sometimes small business owners find themselves in a state of financial distress, and fail to read the fine print on their credit terms.  The terms and conditions of most credit cards, even if they are opened in a business name, put the responsibility of the funds on the cardholder.  This is because the majority of small businesses in the United States are sole proprietorships.  Should you be involved with a corporation, a bank may still require that you personally guarantee the line of business credit.

In the unfortunate event that your business fails, it will become your responsibility to make payments on the business credit account.  Should you find yourself unable to remit timely payments, this information will appear on your personal credit report, and obviously have a negative impact on your credit score. 

Sharks in the Water
Credit card companies are targeting the small business market, using many of the same techniques that are found in the college market.  They offer attractive introductory 0% interest rates, rewards programs, and enormous credit lines to entice new clients. However, these seemingly attractive incentives come at a hefty price. With interest rates ranging commonly from 18% to 28%, one missed payment, or a rolling balance, and it will be the credit card company, not you, laughing all the way to the bank. 

A Careful Balance
Credit cards certainly are appropriate to use in the business world, just as they play an important role in personal financing.  Their convenience and potential to produce rewards such as cash back bonuses, or frequent flyer miles, can make for a lucrative relationship.  A business credit card should be handled with the same care as a personal card, as the repercussions of mismanagement will reflect in credit scores for years to come. Constantly monitor spending, keep accurate records, and only charge what you can pay back.

You can find more information on the use of credit along with access to your free credit report at SpendOnLife.com. For your reports without the scores, see www.annualcreditreport.com.