Securing financing for a new enterprise can be a challenge. While there are many options for financing available – bank loans, investors, vendor credit – most are hard to obtain in the first years of a business. Because of this, many business owners turn to credit cards to fund their business. Typically, it is difficult to open a credit card in the company name (due to lack of business credit), so owners often have to open the cards, personally. The credit lines extended can be significant and it is important to manage use of this financing wisely.

Considerations:

• Credit card interest rates can be extremely high, more than triple that of a traditional bank note. Consider a credit card rate of 18%. If you carry a $10,000 balance, you’re going to be paying nearly $2,000 per year in interest.
• Credit cards used for the business will likely affect personal credit. You may go to look for personal financing for a new car or home and be surprised by the affect the business credit card balances have on the financing decision.
• Minimum payment amounts will have you paying on credit cards for years, paying for your purchases 10 times over. That $500 advertisement you pay for today, could end up costing you two or three times that if you leave it on your card for years.

Tips for managing credit cards in your business:

• Sign up for a card that will track spending by user. This will allow you to give team members cards and track who is spending what and also help you track down receipts and support.
• Try to reserve one card to be used for large purchases that you will pay for over time and choose the card with the lowest interest rate.
• For regular monthly purchases, use one card and pay it off every month.
• Make a plan for paying down large credit card balances, budgeting in your cash flow each month an amount for debt payoff.

Credit cards may be your only option for financing in the early stages of your business. Use them responsibly.