A Financial Advisor’s Take on Using Credit Cards to Finance Your E-Commerce Business

E-commerce entrepreneurs certainly don’t have it easy when establishing a small business. Not only are there matters of technology and human resources but more critically, funding that is essential for getting the business beyond a mere big idea to a successful venture. Most e-commerce entrepreneurs start off their businesses with nothing more than their own savings and contributions from family and friends but this is definitely not sufficient to power them to the next stage. This is where the biggest funding challenge comes because they are still too small and bereft of a track record to qualify for bank finance. It is not uncommon to e-commerce entrepreneurs to fall back on their personal or even business credit cards to provide the funds required to grow the business, even though it goes against conventional financial wisdom. Some tips from experts regarding the use of credit cards to finance your e-commerce business:

Appreciate the Advantages of Credit Cards for Business Finance

Perhaps the biggest advantage of using credit cards to fund your business is that you don’t have to explain why you need to incur the expense every time you want to swipe your card unlike conventional loans from banks or credit unions that require comprehensive documentation. The other advantage of using credit cards is the facility of revolving credit that you can use to cover deficiencies in your business cash flow. This can be extremely helpful for evening out a cash flow that could be sporadic for a number of reasons because you can purchase whatever you need without having to apply for short-term loans. If you time it right and pay the full amount by the due date, the entire transaction may be free of interest. Using credit card regularly and making the payments on time is also a very good method of building up business credit that will be evaluated by lenders down the line.

Understand That Credit Card Financing Has Risks Too

Just because credit cards are so easy to use and that too without providing any justification, it does not mean that they are bereft of any risks. Misusing a credit card can not only lead you into a debt trap that you will find it very difficult to get out of but also damage your personal credit score due to the impact of the revolving credit and missed payment dates due to the cash crunch. If you end up paying a lot of interest every month due to making only the minimum amount due to payment, it can leave you short of cash to operate your business and cause it to fail in the long-term. You should exercise abundant caution when using credit cards; it is best to treat them just like a bank loan and repay it as quickly as possible. Consolidating multiple credit card dues with the help of a reputed online resource like Nationaldebtrelief.com can save you a lot of interest.

Choosing the Right Credit Card Can Make a Lot of Difference

While it is easy and convenient to start using your personal credit card for your business, you should ideally apply for a separate business credit card as then you can keep your personal and business expenses separate. This will not only make your business accounting easier but also keep your personal credit limit free of any charges that you may run up for your business. Typically, all business credit cards come with higher credit limits as well as feature rewards programs that are more suited for business use. They typically also offer better discounts on travel, hotels, office supplies, and services. While it is definitely important to pay attention to the annual fee charged by the card, it is also vital to look out for the rate of interest. In many cases, using the card for a certain billing amount per year can lead to a waiver of the annual fee. It is best to use any of the online resources to compare some of the leading business credit cards to find one that is best suited to you.

Monitor Credit Card Use and Have a Usage Policy in Place

When there are multiple people in your e-commerce business who can run up charges on the business credit card, you need to be really careful about monitoring the expenses; otherwise, you can be soon heading towards a mountain of debt due to indiscriminate use. You should have a strict policy that is clearly understood by all regarding the expenses that may be charged to the business card. Fix individual spending limits for each person and make it clear that the card is not to be used for their personal expenses. Spend management solutions like Spendesk make this easy and automated. Getting a grip on the charges is essential as in most cases; you will be personally liable for the card dues even though the card is in the name of the business.

Benefit from Introductory Rates

Many business credit cards come with an interest-free period for the first 12 months or so to encourage business owners to get into the habit of using the card. If your card offers a zero percent APR as an introductory offer, make sure that you avail of as much as you can because it essentially amounts to a zero percent loan. You can make purchases for your business and pay only the minimum amount due every month without any interest being charged on the rollover amounts. However, you should ensure that the entire amount is repaid by the end of the offer period.

Conclusion

While it is not necessary to use your business credit card for all business expenses, you should try and maximize its use whenever you can use the free credit period or the any of the introductory offers to your benefit. Try and keep the utilization to around a third of your credit limit to ensure that it does not end up hurting your credit score. Be sure to make the payments on time to avoid late payment fees and keep your credit score intact. Don’t forget to claim interest payment, annual fees, and even late payment fees as a business expense.

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