Business startup ventures are utilizing credit cards to finance the business venture. You might have personal credit, but your business is new and doesn’t have business credit. As a business owner, you can effortlessly access personal credit cards with a good credit score if you have a good personal credit profile and use the CIBIL score app. You can use it to fund your business costs. If you use your personal credit card for financing, you are solely responsible for the debt you incur. Using personal credit cards means taking vital risks. Bank loans and credit lines are unlikely for a startup business venture because they do not have business credit. Instead, you can opt for other business options. If your business is anticipated to evolve, you can get venture capital or attract an angel investor to finance your business.
Advantages of Using Credit Cards to Finance Your Business
The advantages of using credit cards to finance your business are as follows:
- A few credit cards have low-interest rates. Business financing sources like asset-based lending have high-interest rates.
- If you need to pay your startup costs using your personal credit card, you can transfer that balance to a business credit card without paying any charges.
- Credit card financing to fund your startup business venture is effortlessly obtainable if you have a good credit score and cards in your name. Use the CIBIL score app to check your score quickly before applying for credit financing.
- If you have a revolving credit can effortlessly repay it. You can clear your dues with business or personal credit cards as credit is revolving.
- Credit cards provide numerous rewards to business owners. You can earn reward points for your expenses, airline miles, and cash back with the help of credit cards. These could benefit your business.
Disadvantages of Using Credit Card Financing for Your Startup Venture
The demerits of utilizing credit card financing for your startup venture are as follows:
- Credit cards are an effortless tool that can be misused by incurring high balances and missing payment deadlines. You will incur high charges that will hamper your startup if you miss payments or exceed the credit limit, reducing your credit score. Hence, pay timely and download the CIBIL score app to check your credit score.
- If you utilize a personal credit card to fund your business, you may need additional credit for your personal needs. Ensure your credit card has a high limit if you use a personal credit card.
- You can become ineligible for other credit types if your balance is excessively high.
- You could become personally accountable for your startup venture debts.
- If you frequently make late payments, using credit card financing for your startup venture could hurt your credit score and adversely impact your financial habits. Therefore, refrain from missing payments, and check your credit profile on the CIBIL score app.
Factors to Remember While Selecting a Credit Card for Financing Your Startup Venture
You should consider some vital factors before selecting a credit card for financing your startup venture. These are as follows:
- The interest rate is among the most vital factors. Find a credit card with low-interest rates to save money on interest charges.
- Apply for a credit card with a high credit limit to finance your startup without maxing out the limit.
- If you make many business purchases, select a credit card with rewards that you can utilize to offset your startup cost.
- A few credit cards have yearly fees, while some don’t. If you are searching for a card without yearly fees, you will have to sacrifice some features, like rewards programs or a high credit limit.
Tips to Utilise Credit Card Financing Responsibly
A few tips for using credit card financing responsibly for your startup venture are as follows:
- Ensure a high credit score if you want to use your credit card to finance your startup venture. Log into the official websites of credit bureaus in India or the CIBIL score app to check your score to get approved with the best terms and conditions.
- Use your credit cards judiciously. Refrain from paying late, maxing out the cards, which might hamper your credit score.
- Repay your balances in full every month, which will aid you in avoiding interest charges and lowering your debts.
- Utilise rewards cards judiciously. Multiple rewards cards offer benefits like cashback or reward points. Spend what you can afford.
- Meticulously check your credit card statements to help you swiftly notice errors or unauthorized charges.
Ways to Minimise the Risk of Using Credit Card Financing
Some ways to lower the risk of credit card financing for your startup venture are as follows:
- Apply for a credit card with a low-interest rate.
- Repay your monthly balance before the due date.
- Limit your expenses
- Monitor your credit profile and report.
Utilizing personal credit cards to finance your startup venture isn’t an appropriate approach. Even if it is the only way, there are strategies you can use to make it work in your favor if you are cautious. Credit card financing has advantages and disadvantages, but it is advisable to replace it quickly with conventional business financing. When you are in credit card debt, be cautious and follow the card’s terms and conditions. You can select an alternative source for financing your startup venture when feasible. Doing this lets you clear credit card dues quickly and improve your credit score. Later, use the CIBIL score app to check your score.