Many people who own and operate a small business wonder whether or not they should use a credit card to assist them in financing the business. The answer isn’t as simple as just “yes” or “no”. Instead, you need to weigh all of the pros and cons of using a business credit card to finance your business and factor in all of the needs of your own business in order to make a decision about whether use of the card will positively or negatively impact the business. In most cases, what you’ll find is that it’s a good idea for funding some aspects of the business but only if you have a clear plan in place for repayment of that debt
Next, you should sit down and come up with a financial projection of exactly how much you expect to spend on the card within a given period of time. For example, let’s say that you have just opened an account with a 0% APR for the first six months. Calculate what you expect will be the amount of expenses on the card during that six months. This will give you an idea of what type of balance you’re going to have on the card when the low APR runs out. If the amount is high, you may need to readjust your budget or re-think putting this expense on the card.
Before proceeding to finance your business with a credit card, you should exhaust all of your other options. Can you get a line of credit for the business so that you can purchase things as needed at a lower interest rate? Can you get an investor to front some money for the business in exchange for a percentage stake in the profits so that you can avoid interest all together? Is it possible to get a small business loan from your bank that has better terms than the credit card? These may all be better methods of financing the business than use of the business credit card so make sure to at least consider them.
If you’re dead set on using a credit card, you should establish a budget for the card using the financial projections that you’ve already calculated. Next you should establish a repayment plan based on your projected earnings. Continuing from the above example, you could assume that you will need to take an additional six months at the higher APR rate to pay off the existing balance on the card; figure out what payments will need to be to get that debt paid off. Try to stick as closely as possible to your budget and repayment plans.
Related Posts:
- 5 Unconventional Tips For Financing Your New Small Business Start-Up - Starting a new business can be a risky step but a very fulfilling one as you begin to grow in your successes....
- Tips For Financing A New Start Up - When you start a new business venture, it is an exciting time but also one filled with stress. One of the main...
- Minority-Owned Businesses Still Struggling With Bank Financing - Of all the Missouri business owners surveyed in the last U.S. Census survey in 2007, white business proprietors gained easier access to...
- Business Credit Cards Are A Must For Small Business Owners - One of the biggest challenges small business owners face is a lack of time. You need to find ways in which you...