Should I Use Credit Cards To Help Finance My Business?

Last post: Sep 2, 2019

Much legend has long surrounded the notion of using a credit card to launch or fund a business; the search engine that you might have used to find this article, Google, may not have existed if it wasn’t for Sergey Brin and Larry Page’s use of cards to pay for computers and open-source software in the business’s earliest days. Similarly, the founders of Airbnb, Brian Chesky and Joe Gebbia, apparently had credit card debt of as much as $25,000 at one point. So, is credit card financing a potentially very risky route for a business? It depends on precisely how you intend to use it when supporting your company.

What are the options for credit card funding?

One advantage of credit card financing being such a well-trodden path for entrepreneurs, is the fact that it's proven to be a potentially useful form of business funding in a variety of ways. Turning to a credit card for periodic much-needed cash injections for your business, by its very nature, enables you to keep hold of 100% of your company's capital when you're just starting out instead of giving away any of your equity to investors. Many credit cards also come with very low or even 0% APRs for introductory periods, and cashback or reward points may be available too, which you might opt to spend on business flights or employee perks. 

There can also be some very real risks when using credit cards for business funding. It can be very tempting to constantly try to transfer your balance from one 0% credit card to another as the interest-free period for each one comes to an end – a practice known as 'stoozing' – but this can be a stressful thing to constantly have to do, and you may eventually run out of cards to apply for. Your credit rating could also be hard-hit if the business goes awry.

Consider the best ways to use credit cards

This is not to say that you shouldn't use credit cards as a source of funding for your firm. After all, depending on the nature of your business, it may be necessary to pay for certain equipment or other resources upfront, and if the amount that you need to borrow is significantly less than £5,000, a credit card may even be the best choice. 

Covering some of your business costs with a credit card could also enable you to sidestep some of the restrictions and monthly limits that can be such a hindrance for those trying to depend on bank loans alone for their financing. It's also vital to acknowledge that company credit cards are a form of unsecured finance, which doesn't make them the most affordable type of borrowing. In the event that you fail to repay the balance within the interest-free period, the cost of the flexibility to pay it all off later could be a very high rate of interest.

Could I use a merchant cash advance? 

If you make the majority of your revenue through credit card transactions, a merchant cash advance could be an excellent flexible funding option for your business. You receive the advance and then automatically pay a small percentage – typically around 10-15% – of your firm's credit card receipts to the advance provider until you have paid off the full amount. 

Merchant cash advances can bring many benefits for businesses, including the lack of any deadlines by which the full amount must be repaid, and the ability to borrow an amount equivalent to your business's proven average monthly turnover. You don't even need to change your card processor, either.

We can help you to find the ideal business finance solution

Would you like to learn more about how a merchant cash advance or any of our other acclaimed forms of business finance here at Choice Business Loans could help to power your firm to new heights of growth? If so, don't hesitate to contact our customer service team today