The startup funding series was created to help you learn about the different funding options available for your startup and how to successfully apply each of them. There are countless ways to raise capital for your startup!
In part IV of the series, we want to discuss tips on how to use business credit cards successfully.
When using a business credit card to fund your startup, it’s important to discern and understand exactly what expenses will be paid for with this card.
Primarily, business credit cards are meant for smaller expenses that can be easily and quickly paid off. They are not meant to pay salaries or rent, as this option can quickly lead to the accumulation of debt.
So, is a business credit card the right move for your startup? Depending on the circumstance, this card can either be useful or dangerous.
A business credit card can be a great way to improve your credit history in order to receive a bank loan later on.
This funding route will allow startups to fund their daily development and growth costs.
Specific advantages include:
- Some business credit cards have cash-pack programs where the money can be used to buy supplies.
- Easy way to grow your startup’s new credit rating.
- You do not lose equity in your startup.
- Good for startups who are struggling to maintain enough cash flow to deal with day-to-day operational expenses.
- Can be used to simplify business finances, making it easier during tax season.
Be mindful of the interest rates that you are responsible for, should your startup fail.
Business credit cards are one of the most expensive business funding options available, given that interest rates are much higher than the traditional loans.
You do not want to misstep during the process of paying them back because failing to do so could cost your startup an important partnership or business credibility.
As a result, this costly debt can drain a startup during difficult times.
Specific disadvantages include:
- Most banks require that startups secure this credit limit against personal assets until they have significant traction .
- Interest rates are generally high so they are an expensive way to finance long-term debt.
- Since the funds are not physically in front of them, startups may overspend without realizing.
- Being late or missing a payment is an easy way to damage your credit rating.
- If the startup fails you are the only one liable for the debt.
Successfully using a business credit card
When used correctly, business credit cards are one option for successfully funding your startup.
In order to alleviate the difficulties that could arise with having a business credit card, it’s important that your startup is not spending more than you bring in. High interest rates can quickly eat into the profits that you do have!
Create a tracker document to make note of how much money is spent, read the fine print on all business credit card contacts, and continue to use it to pay for expenses that you can pay off in less than one or two months.
Remember: not all business credit cards are created equal.
Funding your startup
Scaling and developing a startup requires strategic funding. Every entrepreneur and founder desires to see their ideas accelerate and grow from a mere incubator to an established organization.
As a leader and innovator, it’s up to you to understand and evaluate the advantages and disadvantages of different funding options.
When it comes to a business credit card, make sure that the profits on equity saved will be significantly higher than the interest payments.
Here at Altitude Accelerator, we know that building a startup can be difficult. That’s why we created a blog series called #HelpMeStartup designed to clear up some common confusions among first-time startup entrepreneurs.
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