Tools Home  

Advantages and disadvantages of using credit cards to fund a business

  • It is fast, with little or no paperwork
  • You don't have to prepare a business plan or provide income tax returns
  • Using credit cards simplifies bookkeeping - expenses are automatically tracked with one payment per month
  • Some credit cards offer rewards that can be significant (i.e. 5% cash back on all purchases)
  • Interest rate is usually higher than loans
  • It is too easy to mix personal and business expenses. For corporations, separating personal and business expenses is important to retaining your corporate status. For all other businesses, mixing personal and business expenses makes it hard to determine profitability and make good business decisions.
  • There is a strong temptation to use credit cards without a solid plan. Usually when people obtain a business loan, there is a definite plan for the funds. Typically, credit card use is for unexpected (or impulsive) purchases.
Your credit score and negotiating credit card interest rates

Before switching credit cards to get a lower interest rate, consider contacting your existing card company and requesting a lower rate.

  • Visit or to get actual interest rate information to use in your request.
  • Tell them how many years you have been with their company and that you are prepared to switch companies if the rate is not lowered
  • If you have paid late or exceed your credit limits, do not expect good results.
  • If you are a good customer and you are not initially successful, ask to speak to a supervisor and/or call again in 10 minutes and ask again. Persistence pays.

How to choose a credit card

Credit cards differ, and it is worth comparing them before choosing one. There are at least 5 things to consider:
  1. APR (annual percentage rate) for your purchases
  2. APR on balance transfers
  3. Annual fees
  4. Incentive rewards
  5. Credit limit allows you to easily compare online credit card offers. You should also contact your local bank to learn about their credit card offers.

Personal Guarantees

When you get a business credit card, be sure to ask about required personal guarantees. A personal guarantee means that if there are not enough business funds to pay the debt, the guarantor will use his/her personal assets to pay it. If your business is a corporations or LLC, this means that if your business closes, you will still be liable for the credit card debt.

It is possible, but not likely, that you can get a business credit card without a personal guarantee. Your business would have to have a good credit rating.

Secured credit cards

Secured credit cards are for people with no credit history. You can build credit by depositing money equal to your requested card limit. Then, if you default, the bank has a way to get its money back.

Generally secured credit cards are only used until you can establish credit and obtain a regular credit card.

Please note that even though you have deposited money equal to your card limit, you are still required to pay monthly payments like regular credit cards. These monthly payments are the only way that you are establishing credit. (Cards where you don't have to make monthly fees are called cash advance cards; however they do not help you establish credit.)

Secured credit cards with lower fees are often available through credit unions. Whatever company you use, it is important to compare fees and service. Watch out for companies that require additional "insurance" or high fees.