We live in an era where innovation is the driving force behind the ever-evolving dynamics of finances worldwide. With the ability to pay electricity bills and shopping bills online, fintech has hugely impacted people’s lives in many ways. The ease of starting a business or trying hands in a unique venture comes from convenience being an integral part of the financial ecosystem nowadays, and policies regulating this ecosystem also prioritize consumers’ needs and requirements.
One such weapon to empower entrepreneurs is the advent of commercial credit cards, which allows them to make bold financial decisions without worrying much about losing equities.
Even if someone is planning to start an enterprise, requires capital funding, and has a limited source available, business financing with a credit card can be an ideal solution. What needs to be considered is the availability of high credit limits, reasonable interest rates, and lucrative perks and discounts from time to time in the name of loyalty programs.
For some, it may sound interesting and for others intimidating, so it is always advisable to entail the attributes associated with such form of business financing:
Those of you wondering how a new entrepreneur can put their business idea on the ground when they are not eligible for an assigned business credit line. Worry not because one can use their credit cards to finance their business initially, provided they have outstanding credit scores in the past because of the diligent use of a payment app. This type of financing is known as personal debt financing. Other credit financing options include venture capital or angel investors, as huge amounts of money from bank loans are unlikely to be an option for businesses just starting.
Let’s have a rundown of the advantages of relying on personal debt financing for businesses:
Relatively lower interest rates: For businesses that rely on other conventional sources of financing incur higher interest rates, such as venture capital, asset-based lending, merchant cash advances, peer-to-peer lending, online business loans, etc. While personal credit cards offer interest rates generally ranging from 15-20%, and this is much lower than even what business credit cards have to offer.
Equity ownership is maintained: In other forms of business financing, when the businesses hit rock bottom, they might have to sell their stocks to give up their ownership of a particular asset. However, even if you incur losses in debt financing, those are in the form of liability whether you use a personal or business credit card.
Saves on balance transfer fees: The credit card issuers won’t charge any extra amount when someone migrates from a personal to a business credit card account. In this way, it becomes easy to debt finance the business through personal credit cards and, once it clicks, then transfer the balance to business credit cards without any charges or processing fees being imposed as it becomes essential to segregate the personal and business transactions at a certain point in the financial journey.
Efficient cash flow management: If you use credit cards to track down expenses, make vendor payments, pay rent for the office building and other utility bills, make GST challan payments, maintain a tab of payables and receivables. Then you are likely to optimize the cash flow of your business most effectively.
These were a few pointers we could keep in mind to leverage credit cards for funding and growing our business. Although it is an easy source of quick financing, calculated risks should be considered. Some protective measures can be adopted to avoid future discrepancies, such as carefully reading the terms and conditions of the credit card company, making timely payments, always more than the standard due amount, negotiating for a lower interest rate, etc.
