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How to finance a business with credit cards

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Last editedMar 20222 min read

While it might have once been seen as financially irresponsible to use a credit card to finance a business venture, it is now seen by many as a legitimate alternative funding source. Behind bank loans and business revenue, it is actually the most popular source of cash for smaller businesses.

It can be a risky move if you don’t take the right precautions. It’s a move that can prove lucrative, but it might also leave you mired in debt if you're not careful. So, when you ask “can I use my personal credit card for business”, the answer is a firm yes but with a few important caveats.

The benefits of credit card funding

  • If you’re a startup company with no history, you are unlikely to get a large traditional bank loan. However, if you’ve built up a good credit score, you might be able to apply for a large personal loan even if a bank won't offer you a business credit card.

  • As long as you choose the right cards you might be able to get a lower interest rate on your credit card than with a loan.

  • The debt is all yours and so is the business. The debt you incur is a personal liability; you’re not giving up any ownership in the business.

  • Not only can you transfer the balance of a personal credit card to a business credit card once the business is up and running, but once the credit is paid back you can use it again – known as revolving credit.

  • Depending on the card, you might have access to several reward programmes that you could use towards other business expenses.

The drawbacks of credit card funding

  • The interest rates on business credit cards can be high – they average 15%.

  • While credit cards can be useful for managing cash flow, they can pile up if you have more than one account on the go and it can become easy to lose track.

  • Credit is very easy to abuse if you get carried away and the financial consequences can be severe. If you miss payments or borrow over your credit limit, your business will be in trouble.

  • If you use the same credit card for your personal finances and business finances, you’re unlikely to have a high-enough debt limit for both.

  • You could find yourself locked out of other types of credit if your debt balance is too high

Top tips for financing your business with a credit card

As with most things in finance, knowing is half the battle. With that in mind, if you have decided funding your business with credit is something that appeals to you, keep the tips below in mind:

Choose your card wisely

Do your research and choose a card with low interest and higher spending limits. Note that business credit cards might also have annual fees and rewards programs to take into account.

Set limits

Ensure that everyone in the business is on the same page when it comes to what the credit card is used for and what it’s not used for. This is the only way to take control of your debt and remain within your means.

Don’t forget about it

The more you use the credit card the more advantages you’ll be rewarded with. Just remember to keep spending within around 30% of your limit because reaching over that threshold can damage your credit score.

Make payments on time

Always pay your debts and pay them in full on time. Credit might seem like free money at first but it is still a loan. Loans always need to be paid back on time before the inflated interest and other financial headaches kick in.

We can help

If you’re interested in finding out more about using credit cards to finance your business, or any other aspect of your finances, then get in touch with our financial experts at GoCardless. Find out how GoCardless can help you with ad hoc payments or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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