The conventional wisdom that credit cards are an expensive form of financing for a small business. In fact, as the following table shows, credit cards have lower interest rates than most other forms of small business financing.
We've created this guide to help you to understand when and when not to use a credit card to finance your small business. We also recommend the best credit cards for small businesses.
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approximate cost of credit card financing Vs. Other types of funding
| type of financing | Average April |
|---|---|
| SBA loans | 7 to 9% |
| Traditional bank loans | from 5 to 10% (secured real-estate); 9-15% (non-real -Estate secured) |
| Personal Credit Cards | Approximately 16% |
| business credit cards | Approximately 16% |
| peer2peer loans | 14-29% |
| nonprofit Lenders | 18 - 35% |
| invoice financing | 28-60% |
| alternative non-bank Lenders | 40-80% |
| merchant cash advance | . 80-130% |
* Click here for see recent average April
which credit card should I
here are our recommendations for entrepreneurs who want to finance their business with a credit card
Best Small Business card:?. Chase Ink plus *
Best for Average credit Biz owner: Capital One Spark Classic
[1945006Beste] for Flexible rewards: Amex Business gold
* for an overview and detailed recommendations of the best business credit cards out our leader .
When should credit you consider for your business financing
As the above table shows, credit cards are a cheaper form of finance than almost anything and except traditional SBA bank loans. However, usually require bank loans that you have collateral for several years and profitable.
If we consider the use of credit cards to fund your business, if you need less than $ 50,000 and can not a bank or SBA loans. You might not live long enough to qualify the business for a bank loan or insufficient collateral. Maybe you just need faster access to money than a bank can provide. In these cases may be a credit card, cheaper and faster than other financing options. In addition, credit cards can come with many other benefits, such as sign-up bonuses, rewards points and 0% Intro April.
The average effective interest rate on credit cards is around 16%. Popular alternative lenders such OnDeck and Kabbage, invite APRs that are 3 to 6 times larger! Even nonprofit lenders, like Accion, whose purpose is to help with business, higher April when most credit cards charge.
, alternative and non-profit lenders do course to have their benefits. They will confer with bad credit (credit score as low as 500) to those issues and larger loans (up to $ 250,000). With a credit card you are limited to your credit line, and you need to qualify good credit on the best cards. As a result, credit card financing is best for business owners who have good credit and have smaller purchases finance.
Further advantages of the use of credit cards Your Business Fund
more flexible form of financing
credit cards are more flexible than other types of Financing. With a loan, you have access to a fixed amount of money, and you have a fixed amount every month back. In contrast, you can borrow as much or as little as you need on a credit card each month (within your credit limit of course) and the minimum monthly payment is minuscule.
0% Intro April Promotions
If you keep a balance on your credit card, you should try to minimize your interest payments. You can do this by getting a card with a 0% interest introductory period. Consumer credit cards offer more zero interest periods as business credit cards. The downside is that 0% interest is often a "teaser" rate that is available only for applicants with the best credit score. If your credit score is not so good, you might not qualify for 0% interest.
, 21 months The longest no interest phase, which we have found available with the Citi Simplicity and Citi Diamond Preferred Card. You could charge costs for this card, pay off the entire balance in 21 months, and not have to pay an interest cents! This is taking charge basically like a 21-month loan, but you must have enough money to pay off the entire balance at the end. If not, not only interest is due, but you have to pay interest on the special offer period.
Sign-Up Bonus & Rewards points
There is almost expected today that a credit card you get points for purchase rewards, and many cards you as sign also points give -one incentive. Citi ThankYou Premier is a particularly good rewards credit card. The sign-on bonus is 50,000 points when you make the purchase in the first 3 months $ 3,000 or more. You also earn 3x points on travel, 2x points on dining and entertainment, and 1x points on other purchases. Chase Ink Plus is rewarded another big card. a reward credit card is a great way to earn some extra money for your business!
No balance transfer fees during Intro Promotions
entrepreneurs bear the blame on multiple cards can consolidate the debt into a low interest or 0% interest card and transfer. Normally there is a fee to do this, but some cards it refrain for an introductory period.Chase Slate is one of the best balance transfer cards, because there is no balance transfer fee within the first 60 days and 0% APR for 15 months , Then you will be charged 3% for any transfer. Top
Think Can mind Below we balance transfers in detail.
Keep in Mind Credit card discuss rates that credit cards have variable April. This means that the cost of borrowing on a credit card over time can charge based on market forces. Most short-term business loans at fixed interest rates. This does not necessarily mean that you should avoid credit cards. Credit card rates remained stable for 2 years, and it is unlikely that they would raise more than a few percentage points within one year. Even if they did, you might find another card with a lower interest rate and to transfer the balance (see below for more information). Be Smart When credit cards to fund your business
1. Treat your card like a loan and make regular payments
If you take out a loan, you are required to be repaid in regular installments. If you use a credit card, it can be tempting to let your balance stack. We advise credit card to treat financing as loans and regular payments every month to make the balance in check. Otherwise, you will significantly increase your interest charges and the amount of money you owe. You can also hurt your credit score at the end.
A rule of thumb is your business to analyze budget and figure out how much you will pay back before you get your first credit card statement. Bankrate.com suggests that you pay double or triple the minimum monthly payment to protect your credit score and shrink the final amount that you will owe.
When you apply for a loan, take only what you absolutely need. Treat a credit card in the same manner, and only for the essential business purchases. If possible, try and keep your balance at 30% of your credit limit or less. When you approach your credit your credit limit, which may be a bad sign for the creditors and hurting your credit score. In turn, this could harm your ability to later obtain a small business loan. If you need to maintain a balance that is greater than 30% of your credit limit to pay at least more than the minimum monthly payment.
2. Balance Transfers
About half of small businesses have credit card debt. Balance transfers, you can consolidate debt and transfer all your balances to a low interest or zero interest card. This can help you save money on interest and make payments more convenient because you make payments on one card instead of several.
a few restrictions for operators There are seeking a balance to do transfers. First, make sure you balance transfer fees are not so high that they end up detracting from your interest savings. A typical balance transfer fee is 3% of the amount that you transfer.
Second, make sure that your credit limit is high enough to be the full balance justice.
Third, if you want to separate not transfer your business and personal finances balances from a personal card that on a business card, and vice versa. Chase Slate is one of the best balance transfer cards, because there is no balance transfer fee within the first 60 days and 0% APR for 15 months.
After the 0% intro period, your April versa for this card on the standard April Most cards charge a variable April which varies with market forces. The change is very small from year to year as a rule. Accurate April, you get on your creditworthiness based. The card issuer can raise your APR, (known as a penalty APR) to make you late payments.
3. Make sure you can see the renewal fee Afford
If you accumulate a balance and have to pay a hefty annual fee, are you fight a losing battle.
Many good credit cards have no annual fee. Some, like Capital One and Discover VentureOne cashback combined 0% APR for several months with no annual fee. This is an excellent combination because you save on interest and need money not shell out for the annual fee.
Some cards have annual fees but do it again for them with cash. For example, the Citi ThankYou Premier card performs a $ 95 annual fee but gives you 50,000 bonus points (equivalent to $ 500) when you spend $ 5000 with your credit card within the first 3 months of account opening. This pays for the charge 5 times over. Ultimately, you should evaluate a card of benefits to determine interest rate, annual fee and other charges, if there is a good fit for you.
4. with your business partner
Many people get Clarify credit card use credit cards in their name and leave their business partners use the card for business expenses. If you have a business partner, it is crucial to be in advance, which is responsible for what to protect the name of the cardholder credit score. We recommend that you consult a lawyer, but at least you should have a signed written agreement the following clarification:
(1), which part of your business budget go the credit card bill is to pay each month;
(2) to pay how much you and your business partners to each towards credit card bills from your personal funds if the business can not afford to; and
(3) states that the business partner that is not for the card shall use the name cardholder for its share of the payment, if they have to use personal funds.
agreement on these things before you use a credit card for business expenses, you will save time, money and heartburn later.
If you have a business credit card, can get a second card for a partner or an employee a pay additional fee. Usually, the business unit and the name is cardholder are jointly responsible for paying the monthly credit card bills. an authorized user to a consumer credit card add is usually free of charge. Authorized users but the same issues as the cardholder privileges mentioned are not financially responsible for the balance.
5. Use are not the same kinds of cards for various business purposes
all credit cards. Choose a card based on your business goals. Entrepreneurs who borrow on their credit cards will benefit most from a card that after 0% APR for a long training period and a low APR. If you already have balances on other cards that you want to transfer over, should be a card with no balance transfer fees. Finally, if you can not be financed with a credit card Find your business, but only one credit card for daily business expenses want, choose a card with a good rewards / cashback program. These are our recommendations in each category:
Best Small Business Credit Card: Chase Ink Plus
Best for Average Credit Biz Owners Capital One Spark Classic
Best for Flexible rewards :: Amex gold Business
How to get the best credit
If you finance your business using a credit card, you are limited by your credit line. Although credit score is the primary factor in determining your credit limit, you may take certain actions in order to maximize your credit line.
Sometimes you have to take any action in order to increase your credit line. If you make timely payments, most credit card companies will come across your line of credit at least once a year. For example, Capital One promises an increase in the credit line, if you. 5 on-time payments on their platinum credit card If your business credit card not increase your credit limit within 5-6 months of opening your account, call or. Email If you have a history of on-time payments, the issuer will usually increase your credit line, you have to keep a customer. If they refuse your request, ask them why. If they quote a low credit score, a copy of your credit report and have corrected any errors.
Certain credit card companies are known to have higher credit limits than others available. This is more rumor than fact, but it may be to steer in the right direction. For example, US Bank and Discover have a reputation for higher credit lines and the same goes for Amex credit cards. Amex charge cards are a poor choice for corporate finance, because the balance in full each month to be paid.
Remember that just because you have a higher credit line, it does not mean you have to use it. In fact, have a higher credit limit, without using it to increase your debt-to-available-credit ratio, and this will have a positive impact on your credit score.
Business vs. Personal Credit Cards
There are two types of cards, personal and commercial cards. If you have a new business, it makes sense to use a personal credit card. If your business matures, it may be time to invest in a business credit card.
consumer credit cards offer 0% APR intro long periods (up to 21 months, as compared to 9-12 months with business cards). This is useful for a new business, located off only on the ground and has as much money as possible to save. Consumer credit are also subject to the National Credit Card Accountability Responsibility and Disclosure (CARD) Act, the card cardholders of sudden hikes in interest rates and fees, and the decline in credit limits below existing balances.
business credit protects come with several advantages. They offer higher credit lines, so that when your business outgrows a natural choice for the border with credit cards. Protect cards also your personal credit score and build your business credit score. A business card is not on your personal credit report, and credit card companies do not report activity on a business credit card to consumer credit bureaus (unless you are habitually late on payments). Rather, business credit cards affect your business credit score, an independent valuation by B2B lenders used in determining whether to grant capital. Finally, you can charge only operating expenses on a business credit card, forcing you to separate your business and personal expenses. This simplifies recordkeeping and accounting. We provide a comprehensive review of the best small business credit cards.
Need some money for your business? Click here to get our free guide:
How to Get a Small Business Loan obtained
Bottom Line
Contrary to conventional wisdom , with a loan. Card to finance your business, is not always a bad idea. In fact, for entrepreneurs with good credit, which is to get cheaper than most types of non-bank loans no bank loans, borrowing on a credit card.
The key is to be smart, if a credit card with. Treat it to perform like any other loan and regular payments. Use features such as 0% introductory APR and no balance transfer fees. If you have a business partner, make sure in advance to find out how much credit card payments go per month. Following these guidelines will help you wisely on your credit card to borrow.
If you need a quick business loan? We recommend Kabbage. The application is quick and easy, and you can borrow up to $ 100,000 minutes. Click here for an immediate decision
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