Financing Your Small Business with a Credit Card: The Right Option For Business Owners? |
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Small business loans are a good source for
financing small businesses but of late, people have started using the credit card for this purpose. As a result of the advent of the Personal Computer and the Internet and due to a stagnant economy and job layoffs, many new small enterprises are springing up with the help of small business loans. With the increase in popularity of credit cards, more and more small businesses are now opting to finance their operations with credit cards. Although small business loans can be obtained at lower interest rates, people are choosing credit cards for financing their business. Gone are the days when we were taught to save first and spend later. Today it is just the opposite as people spend first and pay later. The credit card is responsible for this turnaround and people are no longer hesitating to use the credit card as they were, some time back. The credit cards have now swarmed the market and many people have more than one credit card with huge balance limits on them. This trend is responsible for the entrepreneurs opting for use of the credit cards to finance their small business ventures, whereas previously people were more dependent on small business loans. The advantages of financing a small business with a credit card: Apart from the reasons discussed above, most small business owners who have opted for using their credit cards for financing their new business ventures feel that this is very convenient for them as they already have the credit approval and do not need to go in for any other loan approval. Unlike small business loans there is no additional funding required to put the start up and operating costs of a small business onto a credit card. Moreover, the costs can easily be covered by the unused credit balances that most consumers already have on their credit cards. There are other advantages for financing a small business with a credit card, such as easy monthly payments, incentives, convenience, rewards and percentages offered by the credit card company. As small business loans might ask for the business plans, many entrepreneurs who do not want to reveal their business plans do not choose the small business loans. The biggest disadvantage of using a credit card is that it necessarily entails a very high interest rate. It is, therefore, important for an entrepreneur to compare the interest rate on the existing credit card with other currently available options like small business loans as the existing credit cards which have been operative for many years might not be offering the best competitive rates. At this stage the entrepreneur can decide to either apply for another credit card with a better interest rate and payment terms or ask the existing credit card company to match their rates with what is available in the market to keep you from leaving and going to another company. The other viable option is to opt for small business loans to raise the capital for your new business venture. If a small business, which has been financed with your credit card, does not succeed, the onus for the business debt will fall entirely on you. Moreover, it can be a long time before the business expenses are paid off, and if the small business becomes too dependant on the credit card, it might take too long before the business finally supports itself. This is not the case with a small business loan in such a situation as all previous debts can be paid off with the extra money available with refinancing the small business loan. Considering all the aspects, although credit cards might offer an easy and flexible way for getting the money for starting a new business, it is not advisable to keep on using the credit cards forever. |
