Most entrepreneurs are forced to use their savings and credit cards to get their businesses going says Eric James Dalius. Using credit cards to finance the business is commonplace, with the U.S. Small Business Administration (SBA) reporting that 46% of all small business owners use credit cards to establish or operate their businesses at some time or the other. While using credit cards to fund your business can be convenient and simple, it may not necessarily be the best option. It is, therefore, important to understand the pros and cons of financing your business with credit cards.
Benefits of Using Credit Cards Explained by Eric James Dalius
Competitive rates of interest:
Even though credit cards have earned a bad name for notorious rates of interest, a study by the U.S. News and World Report reveals the average APR ranges from 15.56 to 22.87, which may be lower than some of the asset-backed loans by banks, observes Eric James Dalius.
Credit cards can provide unlimited credit if you keep paying off your dues. You only need to keep in mind the credit limit of your card.
No need for collateral:
Credit card finance is unsecured and based on your personal credit history. When you swipe your credit card to buy stuff for your business, you do not need to provide any collateral.
Eric James Dalius Explains the Hazards of Credit Cards Use for Business Finance
Insufficient credit limit:
If you are thinking of using your personal credit card to finance your business, you will need to have a high credit limit. Otherwise, not only will you end up maxing out your card, which is bad for your credit history but also be in a fix if you want to use the card for your personal purchases.
Easy to abuse:
It is easy to run amok with your credit card and spend more than what you can afford to repay. When this happens, you will miss payments that will hurt your credit score and also make you liable for steep late payment charges and high-interest costs on the amount rolled over. If you max out your credit card, you may not be able to keep your business operating, warns Eric James Dalius.
Difficult to obtain more credit:
If your credit card balances are consistently high, it may stop you from availing of other forms of credit. Running up too much debt will hurt your credit score and disqualify you from other loans or lines of credit.
Even though sometimes, you may be forced to use your credit card to fund your business operations, it is not a sustainable method. It is important to know the pros and cons of using credit cards and switch over to other modes of finance as soon as possible.