Whether you’re just starting your business or have been at it for a while, there is going to come a time when you need some cash. When it comes to financing a business, some people opt to go the business loan route, while other business owners take another path. This may be using credit cards. 

 

If you’re unsure whether it’s for you, we’re going to break it down for you. We’re also going to take a look at a well-known company that got its start with the power of plastic.

 

Using the Power of Credit Cards to Fund Your Business

 

When you want to know how to get a business loan, but don’t necessarily want to go through the loan process, you may look into your wallet at those credit cards calling your name. Although it may not be the conventional route, it could be the one that leads you to create the business of your dreams.

 

If you’re a little hesitant, know that you wouldn’t be the first one to take charge of your business by using your credit cards. The owners of Airbnb, the company that lets you book non-conventional places to stay around the country, got its start when the owners decided to use their credit cards to pay for business expenses. They racked up $25,000 in debt as the company went through some highs and lows to get on the right track. But, once it did, Airbnb soared and is now a multi-billion dollar company. 

 

While not all businesses reach Airbnb status, the point of the story is that you can have a successful business if you have to use your credit cards to light the fire. It’s what you do to keep the fire going that will determine your success.

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If you’re thinking about financing a business using credit cards and need to apply for a new one to get the money, consider these tips:

 

Don’t wait until the last minute. If you know you’re going to need the money six months from now, apply now, not a month before. When you wait for the last minute, you can’t expect to get the best rates and products. Giving yourself enough time means you can shop around.

 

Have a good debt to credit ratio. It’s best to pay down any high debt before using your credit cards for a business loan. While lenders like to see activity on credit cards, they don’t like to see a high debt to credit ratios.

 

Make sure credit bureaus have the right information. If credit bureaus are missing information about you or have the wrong information on file, you might as well put a closed sign on your business. This is going to hurt your chances of getting any type of money.

 

Requirements for Obtaining Unsecured Business Finance

 

If you’re thinking of using your credit cards to get money to start a business or fund your current one, you’re probably wondering whether you qualify. You should think about how much money you’re going to need. You can request as little as $20,000 or as much as upwards of $50,000. Remember, just because you ask for a certain amount doesn’t mean you’re going to get it. It’s just like when your kids ask Santa for gifts. Not every wish is going to be granted!

 

The good thing about using credit cards for a business loan is that there aren’t too many requirements at all!

 

Here’s what needs to happen:

  • Have a credit score of at least 680
  • Have any liens in payment status

 

While it’s not ideal to have filed bankruptcy at any time if you did, it doesn’t shut you out of the game completely, but it could impact it. Also, you can have a credit partner which can help you get more credit. 

Things to Consider When Financing a Business with a Credit Card

 

When you’re thinking about using a credit card to finance your business, there are several things to keep in mind.

 

Don’t Pick a Card, Any Card. When choosing a credit card to use to finance your business, you need to choose the right card. They are not all created equal. If possible, choose a business card over a personal credit card. Business cards usually have higher spending limits and may also offer discounts. You also want to look at the interest rate. This could be a deal-breaker if the interest rate is too high. 

 

Take Advantage of Introductory Rates. There are plenty of credit cards that come with 0% APR for as long as 12 months. This is a no-brainer because this is basically a no-interest loan that you can take advantage of as a business loan. If you are confident that you can pay off the balance during that introductory period, this could really work in your favor.

 

Use the Card Regularly. If you use the card regularly, you’ll not only keep it active but you’ll also prevent your credit score from going down. When you don’t use your card and the account gets closed, it can decrease your credit score.

 

Deduct Interest from Your Taxes. Many people don’t realize that they can deduct credit card interest from their business taxes. If the purchases were business-related, it’s all good. This can help when tax time rolls around.

 

If you’re thinking of financing your business with a credit card, keeping these tips in mind can be the difference between succeeding and failing.

Pros & Cons of Using Credit Cards to Fund a New Business

 

Since you’re a business person, you probably consider the pros and cons of every decision you make. When it comes to using your credit card to fund your business, you want to be all in.

 

Consider these pros and cons:

 

Pros:

Using a credit card for your business can give you access to revolving credit. While the well runs dry once a business loan is exhausted, a credit card can be the gift that keeps on giving…if you keep up with your payments. A credit card gives you access to quick cash for expenses that many businesses find helpful. 

Build up your business credit. If you’re up-to-date with your payments, you can build your business credit. If you find yourself in need of a business loan down the road, this will work in your favor. Using a credit card can also help you increase your credit score as long as you pay the balance back quickly.

Using a credit card requires no business history. One of the big pluses of using a credit card for a business loan is that you don’t have to be an established business person. This is why it’s so appealing to entrepreneurs and new business owners.

You can earn rewards. Many credit cards offer rewards like gift cards, cash, travel vouchers, and more. Take a look at what cards give the best rewards and take advantage of them. Wouldn’t it be great to get free airfare for your next trip?

There are also some drawbacks to using a credit card to finance your business.

 

Cons:

There may be a lower limit than if you took out a loan. Bank loans may offer you more money than you can get with your credit card. If you need a lot of capital, you may want to keep your credit card in your wallet.

You could end up paying more in interest depending on how long it takes you to pay it. Take a close look at interest rates. If they’re extremely high, you could end up paying more money than you want in interest. 

You could end up in big-time credit card debt if you can’t pay it back. If your business tanks and you can’t keep up with the payments, you could end up in credit card debt. At the very least, you should make the minimum monthly payment to stay in good standing.

 

After considering the pros and cons of using a credit card to fund a business, you should be ready to decide if it’s right for your situation. Remember, there are many options when it comes to funding a business and sometimes you have to think out of the box.

Requirements are as follows:

  • 700+ FICO credit score (or have a cosigner)
  • No derogatory credit marks within 6 months
  • No judgments or collections in unpaid status
  • Absolutely No Bankruptcies
  • At least 1 established credit line with $5,000+ limit (the more established the credit, the higher the projection will be)
  • Credit/ debt ratio under 60%

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