Using a Credit Card for Working Capital - Page 2
There is a significant risk associated with business credit cards, however. The first is that business cards are not covered by the Credit CARD Act of 2009, which prohibited unwarranted and unannounced interest rate increases, among other things. The second applies to personal cards as well as business cards: if you dig yourself into too much debt, you’ll find your bills rising higher and higher. The third is that although the credit card is technically taken out by the business, if it has your name on it, it affects your credit score. A missed payments or high debt utilization ratio will appear on your own credit history as well as the company’s.
Can credit card financing ever be done?
Dire warnings aside, using a credit card to raise capital is not without its advantages, particularly if you choose the right card. A business that’s solidly financed and doesn’t anticipate carrying a balance can choose a business rewards card, which often earns bonus rewards on office-type purchases. A business that’s a little leaner can choose one with a low ongoing interest rate. Credit unions are generally a good source for low APRs, though not all offer business cards.
Finally, a credit card with a 0% purchase APR period is best for making a big purchase (like furnishing an office) and paying it off over time. Many cards earn rewards in addition to having a zero-interest period.
Like a personal credit card, a business credit card can be a great asset when used responsibly. If you use the card to make solid investments, you’ll avoid being trapped in debt and will have the tools to grow your business.