Throughout the life of a small business, there will be a time when the owner is faced with answering a tricky question: How do I finance my Business?
We have found this question arises for a number of reasons-Whether the business is in a cash crunch, or need quick capital in order to take full advantage of a coming opportunity, or they are looking to expand. Regardless of the reason, it’s not an easy task to decide it debt is the best solution.
In times like these, you should be running your business model through a cost-benefit analysis in context with the amount of capital you are looking to utilize. Before figuring out what route to go when financing your business, it’s important your cost of debt and how you plan to make the capital benefit your business.
There are numerous products and various institutions with options that you will undoubtedly qualify for, regardless of your standing. From SBA loans, to invoice factoring, to even small lines of credit from online lenders. An option that is considered but not heavily utilized, are business credit cards.
Business Credit Cards to Fund your Business?
It stands as a valid option even though most people will tell you NO!
It’s only a valid option because, along with being able to make purchases with credit (money you don’t have), there are a handful of bonuses and perks that incentivize them. Another reason why you could consider a business credit card is to build business credit. Depending on how you use your business CC, you could end up paying virtually no cost on the credit you’ve used. Some cards offer 0%APR for the first 6 to 12 months of obtaining the credit, cashback on certain purchases, and in certain cases, being able to pay off your debt within a month with little to no cost makes sense. In some other cases, however, business owners need a little bit more time or a program that’s designed for their specific use.
There are countless cards for countless reasons with countless perks, if you can find one that will work for your purpose, I’d say go for it. As for flexibility to the all-around needs of a business, a business credit card won’t be able to provide higher approval amounts and `actual liquid capital. Your credit limit might be high enough to cover the expense of what you are planning to finance, but likely, you won’t be able to receive that full amount in liquid cash.
It’s easy to just take the route of getting a plastic square to eat the expenses your cash flow can’t. Successful entrepreneurs invest with intent. Instead of relying on a card that will continue to roll over debt into the next month and spending the money you haven’t made yet just to operate day to day, you should plan extensively for a specific use of funds and execute. Not to say business cc’s can’t help you in certain circumstances, it’s just a well-fitted loan will fit an overall specific need and provide you with a larger sum of hard cash, to which can be used to calculated investments. Do you think any successful business did it by using credit cards? No, although they probably had them on hand in case they needed them but didn’t heavily rely on them for the intelligent expansion required to get where they are today.
Conclusively, they just can’t be compared, because they are not the same thing. I know what brought you into reading this article is a comparison between the two, but being a writer for an alternative lender who does not offer credit cards, I’m not going to attempt to bias you by steering you away from them. The truth is, I want to outline the differences between them and how they work in order to help you understand what the potential benefits are for each. Use them both. But when it comes to effectively expanding your business, you are going to need a loan structured to do so. When it comes to day to day business expense, a business credit card is the way to go.