What are the Pros and Cons of Funding Your Business Through a Credit Card
If you’re thinking about funding your business through a credit card, There are a few things to consider. On the one hand, using credit cards to fund your business might be a quick and simple way to obtain the funds you want, but on the other hand, there are some potential downsides. This article will examine the pros and cons of funding your business through a credit card.
How to Fund Your Business Through a Credit Card
There are a few ways to fund your business through a credit card. The first way is to use a personal credit card. This can be a great option if you have a good credit score and can qualify for a high credit limit.
Another way is to get a credit card for business. This can be a great option if you don’t have good personal credit or if you want to keep your business and personal finances separate. Business credit cards often have higher limits and lower interest rates than personal credit cards, so this can be a great way to save money on interest charges.
You can use credit cards to meet your day-to-day expenses or pay your vendors if they accept cards. You can also withdraw cash from your card and use it to make payments. The main difference between paying directly via card and withdrawing cash is that the former allows you to remain interest-free until the next due date, while the latter requires you to start paying interest from the day you have withdrawn the amount.
Funding your business through a credit card can be a great way to get started without having to take out a loan or dip into your personal savings. However, it’s important to understand all the pros and cons before choosing this method of funding so that you can make the best decision for your business.
Pros of Funding Your Business With A Credit Card
There are a few advantages to using small business credit cards to fund your business:
- You can get funding quickly: If you need money fast, using a credit card to fund your business is a good option. If you have a credit card, you can have access to the funds you need immediately. You don’t need to apply for a loan every time you need funds.
- You can build a good credit score for yourself or your business: Using a credit card to fund your business regularly and making timely payments can help you build a good credit score over time. This can be helpful if you need to borrow money in the future.
- You can earn rewards: Some personal and business credit cards offer rewards, such as cashback or points that can be used for travel. This can be a nice perk if you use your card frequently for business expenses.
- You can keep your loan interest-free: Credit cards charge zero interest for a certain period of time. This means you don’t have to pay any interest if you pay your credit card bills on time. This can be helpful if your business needs short-term funding.
Cons of Funding Your Business With A Credit Card
Below are a few disadvantages of credit card to finance a business:
- High-interest rate: While credit cards offer an interest-free period, they charge a higher interest rate if you fail to pay your dues on time. The interest on pending balance can range from 24-48%, which makes this form of funding considerably more expensive than a regular business loan.
- Fees: Another downside to using a credit card to fund your business is that various fees may be associated with doing so. For example, some cards charge an annual fee, while others may charge transaction fees for each cash withdrawal you make.
- Credit Limit: Credit cards often have a lower credit limit in comparison to other forms of financing. Most credit cards offer limits in the range of Rs 15,000 to 5 Lakh. This limit might be insufficient to cover the funding requirements that your business needs. This could result in you having to put some costs on hold or find another form of financing.
- Repayment Schedule: The repayment schedule is one of the main limitations of credit card. When you use a credit card to finance your business, you will typically have to make monthly payments towards the outstanding balance. This can be difficult to manage if you have irregular income or unexpected expenses. You can covert your credit card bill to EMIs, however interest rate is on higher side.
- Impact on credit score: Finally, it’s important to note that using a credit card to finance your business can impact your credit score. If you miss payments or use a high percentage of the credit limit on a regular basis, it can negatively affect your score.
What are the best ways to use a credit card to fund your business?
After going through the pros and cons you might wonder if seeking credit for business through a credit card is a good option. The answer is, if you use your credit card carefully, it can be an excellent method to fund your business. Following are a few tips that you should keep in your mind while doing so.
- Set a limit and stick to it. It’s important to make sure you don’t overspend with your credit cards. Set a limit for yourself and make sure you stick to it. This will help you stay within your means and prevent you from getting into debt.
- Make sure you pay your bills on time. Late payments can lead to late fees and increased interest rates, so it’s important to pay your bills on time. Set up reminders or automatic payments so you don’t forget to make your payments.
- Monitor your statements. Keep an eye on your statements to make sure there are no fraudulent charges or mistakes. If you find any, contact your credit card company right away.
- Keep your business and personal expenses separate. If you use the same credit card for both personal and business expenses, it can be hard to keep track of your spending and budget. Try to keep your business and personal expenses separate, either by using different cards for each or by creating separate accounts for each.
- Make sure to use a credit card that is tailored to the needs of your business. Look for cards that offer rewards and other benefits that can help you save money. Also, be sure to read the terms and conditions of the credit card, such as any fees or interest rates, before signing up.
- Avoid cash withdrawals/fund transfers from credit cards, as these have higher fees/interest rates.
There are both pros and cons to consider when deciding to fund your business through a credit card. While it can provide a much-needed influx of cash to help your business grow, it also carries with it a certain amount of risk. You must carefully weigh the advantages and disadvantages before deciding to use a credit card to finance your business venture. Ultimately, the decision will depend on your specific circumstances and the amount of risk you are willing to take on.
Can I get a business credit card with bad credit?
Some banks may approve a business credit card even if you have bad credit. However, the interest rates on these cards are usually high and the credit limits are low. This means that you will have to be very careful about how you use your card and make sure you don’t rack up a lot of debt.
What are the interest rates on business credit cards?
Interest rates on business credit cards vary depending on the issuer and the type of card you get. However, they are generally in the range of 24-48%.
What is the average credit limit for a business credit card?
The average credit limit for a business credit card ranges between Rs 2 lakhs to Rs 5 lakhs. However, some issuers offer higher limits for businesses that have good financials and a strong history of repayment.
How can I use my business credit card to build my business’s credit history?
You can use your business credit card to help build your company credit history by using it regularly and paying off your balance in full each month. Doing this will show creditors that your business is responsible and capable of repaying debts, which can help you get better terms in the future.
Can I use a personal credit card for business?
There is no restriction on using a personal credit card for business expenses, but it is important to ensure that the expenses are tracked carefully and that the business is able to pay off the due in a timely manner.