First of all, most businesses think credit card is cheaper than business loans. Most of the time that isn’t the case – check credit card rates. Even if you have good credit it’s hard to get single digit rates on business credit cards or personal credit cards.
Most people like the features of credit cards compare to business loans but the negative of using credit cards instead of business loans outweighs most of the features it offers.
Reasons NOT to USE CREDIT CARDS!
Reason # 1: Credit Card debts are UNSECURED and REVOLVING; therefore, it affects your personal credit score when borrowing for your business.
Reason # 2: Credit Card Agreements are one of the few finance agreements that actually have it stated in the fine print that the bank may change the term of the agreement at their will anytime during the term. Rates are compounding and typically not deductible.
Reason # 3: Under the recently passed law called Universal Default, many credit card companies can raise your interest rate if late payment is posted on your credit report by any of the other credit card lenders.
Reason # 4: Same Law that recently passed, Credit Card Companies can choose to have a higher minimum monthly payment, making it less affordable to some. Business credit cards typically don’t offer approvals as big as business loans.
Reason # 5: Again using credit cards affect the overall credit score including your business even if you missed payment on personal credit cards.
Reason # 6: Business credit cards should not be used for fixed asset, labor, fixtures or non-generating revenue because it will tie up all your free access to cash flow. Don’t max out business credit cards as it will affect your personal borrowing.
Reason # 7: Most business credit cards are typically driven by your personal credit, the lower your personal credit the lower the credit line or the higher the rates.
Reason # 8: Be careful of the teaser rates – credit card teaser rates of 0% or 1.99% can be very useful if managed right, however, if managed badly, it can be costly. Banks are now charging cash advance fee of up to 5% and if you miss a payment it will default to the higher rate.
What does low credit score cost for you and your business?
A low credit score on your bureaus will not only cost you higher interest on your next borrowing on business and personal, it can also affect how much you pay for
- General Liability and Auto Insurance
- Life Insurance
- Medical Insurance
- Disability Insurance
- Establishing new accounts for business trades
- Workers’ Comp
- Commercial Bonding
- Acquiring or Bidding – Gov’t Contract
- And many more…
We suggest applying when you don’t need funding rather than wait when you’re showing distress. Remember, personal and business should be separated that’s why you incorporate. Personal credit cards should be the last option not the first option. We look forward to working with you.