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How to Properly Use a Credit Card to Finance Your Small Business

Ruth Hoffmann
Ruth Hoffmann

Learn how to properly use a credit card to finance your small business.

Financing a small business can be approached from multiple directions. It's important to understand what the market offers you and how to use those deals to their full potential, because this initial stage of your company's development is crucial to its long-term success.

A credit card is one of the more popular methods for financing a small business, but it comes with a few caveats that you should consider carefully. Most importantly, it's not the exact same thing as a small business loan, and it has some different implications that you'll need to be aware of.

The basics of using a business credit card

Using a credit card to finance your small business should be treated no differently from a regular loan in that you have to think carefully about your ability to repay the money and keep your balance in check. However, credit cards can provide you with a lot more in the way of floating resources. They make it easy to get a smaller amount of cash when you need it, helping you keep your balance in the positive while you're waiting to get paid. If some of your clients are late with their payments, it can affect your operations down the line. But that doesn't have to be the case if you can cover the negative balance with the help of a credit card.

In fact, most modern businesses rely heavily on perpetually-open lines of credit. This is valid for pretty much all sectors of the market, including larger companies. With that in mind, you should definitely not be afraid to rely on credit lines to supplement your cash flow. In fact, it might be the best option you have in many cases.

Alternative funding sources

You should also consider your other options before resorting to a credit card as a default choice of financing. For example, you might be able to dip into your personal savings if it's an emergency. It may also be possible to take out a small business loan or a personal loan that you can use for your business, or to work with an alternative lender, but there might be severe limitations for these options. Make sure to familiarize yourself with your options and their repayment requirements when planning your next move. You must not jeopardize the future of your business for some quick cash, even though it can be an attractive opportunity.

Be very careful with mixing your personal and business resources in general – it's important to be able to draw a clear line, especially when it comes to dipping into your own money to fund your business. This can get messy fast, although a personal credit card is probably one of the more reasonable exceptions here. Again, if you choose to use a credit card to finance your business, make sure that you have a solid plan for repaying it, and that you understand the full implications it's going to have on your finances. There are many finer points to this that you might not consider at first, so know what your situation is and what the most appropriate next move is for your business.

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Things to keep in mind about using credit cards

The most important detail to keep in mind is that the market is full of offers, and you should take your time to compare them properly. Don't rush to apply for the first credit card you see. Pay special attention to small business credit cards and the perks they offer, and consider whether they would be beneficial for your business. Talk to the different issuers and make sure that you get the full picture with regards to what each card can do for you – this is especially true if you're planning to have multiple lines of credit open. Here are some additional pointers for using credit cards to finance your business.

1. Negotiate for better terms.

It's worth keeping in mind that credit card deals are open for negotiation for the most part, and you can often get better terms if you have good credit. If you're taking out a personal credit card, pay attention to your credit score. This will be a critical factor in negotiating better terms for the card, and may even unlock special deals that are not normally available on the market for others.

When you're trying to get a business credit card, have a list of the points or terms you want to discuss when you speak with the credit card issuer. If you can point out some specific information regarding the growth of your business, you should definitely bring that up.

2. Make timely payments.

The importance of paying on time cannot be overstressed when it comes to using credit cards for the needs of your business. Before charging any expenses on your card, you have to be absolutely sure that you'll be able to cover the balance without any issues. Otherwise, you are going to run into some significant debt problems with your company very fast, and they might be bad enough to bring down your entire operation.

Make a budget to ensure that your business is operating within its means. Use the budgeting tools in your accounting software to help you keep track of your financial streams and to notify you when payments are due. Never lose sight of your financial big picture, because the entire future of your company is tied to your success here.

3. Correct problems immediately.

Problems are going to come up in your finances whether you like it or not – and that's actually going to happen quite often. You need to get used to this fact and start preparing to deal with issues promptly because otherwise, the problems will compound and you're going to feel very stuck. Whether it comes from the side of your business, or your own personal finances, it doesn't matter. The point is that you need to be on top of these issues and ensure that they're resolved as quickly as possible.

4. Always watch for better deals.

Even if you're satisfied with your current credit card, you should never underestimate the market's potential to surprise you with more attractive deals. Credit card companies are always looking to entice new customers, and you will find a plethora of deals to browse through if you haven't checked in a while. Definitely set some time aside to see what's available to make sure you're getting a good deal. This is just one part of running your business properly. Staying in touch with current market trends applies not just to your own individual market, but for the financial world as a whole.

5. Track your usage over time.

We already touched on this above, but it's an important point to reiterate. You should pay attention to your credit card usage habits over time. Don't just trust your instincts on this – make sure that you're working with hard data, and that you understand exactly how your finances have shifted over time. There are various modern tracking tools available that can help you get this job done easily and without having to do a lot of mental work yourself. Applications powered by AI can be particularly useful because they can help you identify patterns in your expenses and inflow which would normally not be that obvious. This data can help you make informed decisions as your business grows.

6. Talk to your card company if your situation changes.

You should be open with your credit card company with regards to your financial situation as it changes – even if it's changed for the worse. You'll often find that credit card companies are much more open to negotiations than you'd expect. They have an active interest in helping you repay them, because your profit is directly tied to their own.

It may take a while to decide if using credit cards as a line of credit is the right move for your small business. Take time to make sure you understand the terms and perks of the cards you apply for. As long as you're able to fully repay the amounts you charge on your business credit cards, you shouldn't run into any significant financial problems with them down the line.

Image Credit: Kerkez / Getty Images
Ruth Hoffmann
Ruth Hoffmann,
business.com Writer
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I teach coaches, consultants & professional service providers the strategic & psychologically proven frameworks that will help them build a highly influential personal brand profile, grow a highly engaged client base of loyal customers and create strategic marketing systems that will help them sell with ease.