Should You Finance Your Startup Business With Credit Cards?

Should You Finance Your Startup Business With Credit Cards?

Reading Time: 5 minutes(Last Updated On: April 30, 2019)

Here we’ll take you through when using credit cards to fund your business is the right choice, along with the benefits, negatives and a few options to consider…

One of the biggest challenges that every business has to face is taking those first few baby steps where you need to find the funding to somehow get your business off the ground. And even after those first few steps, you may find you need to pump in some more financing to provide you with adequate cash flow to grow and expand and you probably already know but the struggle is real – very real. If you’ve exhausted your personal resources and been rejected by lenders, then getting a business credit card, could be the way to go. You could even get startup business credit cards with no credit!

Finance your startup with credit cards? Google did!

Can’t qualify for business loans and wondering ‘can a startup business get a credit card?’, you’re not alone. In short, yes!

16% of US startups use credit cards to start their businesses (according to the U.S. Trust) and some very successful entrepreneurs have used that hard shiny piece of plastic to start their businesses. Look no further than good old Google, founders Sergey Brin and Larry Page used credit cards to get their first pieces of software and computers to get Google off the ground and so did Charles Huang, founder of Guitar Hero. In fact, many businesses started in the bedroom or garages off the backs of credit cards, but how do you know it’s right for your business?

A business credit card or loan?

If you personally can’t get the funds to start your business the next logical step would be to get your hands on a loan or a business credit card. Now there are many different types of loans (discover them in our comprehensive guide to financing a business) and if you’re looking to cover large expenses, say for purchasing equipment, stock, setting up a new shop, hiring a team etc., then a business loan might be the best way to go as they allow for a higher funding amount as opposed to credit cards. But if you can’t qualify for a business loan, or need a smaller amount of funds, then a business credit card (or two), may be your best bet.

Business credit cards can help you to fund ongoing purchases, keep a good cash flow going and get your business off the ground at the very start. They also come with a whole host of extra benefits, think air miles, points, discounts and more.

How to fund a new business with credit cards

Business credit card funding advantages

  1. Startup business credit cards are easy to get (especially if you have good credit to your name) which makes them a great option for startups – credit issuers don’t care if you started your business this morning, they are more concerned with your credit score.
  2. Draw as you need, when you need – no use in paying off a massive $150,000 loan and paying back interest on it before it’s spent when you can draw on a card if and when you need.  
  3. Rewards, rewards and more rewards – business credit cards come with a whole host of rewards including sign-up bonuses, frequent flyer points, complimentary insurance, free express delivery and more (depends on the card you get).
  4. Build up your business credit score – using your credit card wisely, you can build up your credit score, keep in mind that your business credit score is separate from your personal credit score.
  5. Interest-free – some credit cards are interest-free for the first year or so, meaning you could get access to funds literally for nothing (just make sure that you check the terms and conditions to see how the rates change).

But of course, as with any money borrowing, you’ll need to weigh up the risks…

Business credit card funding disadvantages

  1. Can be risky – using credit cards for startup business especially as the sole funding for your business can be a little risky, if your business were to fail, you’d have a debt that you’re personally responsible for.
  2. Can be more expensive – using credit cards for long-term expenses can be expensive depending on the rate on your card. Keep in mind that you could use a business credit card to build money on low (or no) interest in the first year and then switch to a business loan when you can qualify.
  3. Not good for those bad with money management – if you’re prone to putting off payments and someone with sloppy financial habits then a credit card may be the wrong way to go. By putting off payments and not paying your card off in full, you can create cash flow issues in your business.
  4. Tempted spending – business credit cards can be easily misused on things that you don’t really need (but want) for your business, think business lunches. If you’re thinking of getting one, we’d advise that you’re strict with what you use it for so as not to fall into this trap.

Can a startup business get a credit card with no credit history?

Startup business credit cards with no credit are possible! Business owners who are looking to get a business credit cards with no credit are in luck because some business credit cards allow for this. A secured business credit card can be taken out when a business owner has no credit history at all, the catch is, you may be required to provide collateral in the form of a deposit (which of course will be used if you fail to make your repayments on time).

Remember to also check it if you can qualify for start up business loans as an alternative option to credit cards.

Become’s top tips:

  • Look for cards with good rewards programs to make something back on your business’s purchases.
  • Always review sites such as Creditcom to compare interest rates, fees and more, so you can find the right one for you!
  • Mix and match credit cards to make the most of them, using different cards for different types of transactions can be beneficial for example, everyday expenses can be spent using business-rewards credit cards whereas a zero interest personal card may be best for funding.
  • Always read the fine-print – enough said!
  • Take advantage of introductory 0% rates – and sign up bonuses.
  • Startup business credit cards are a great way to get your business off the ground if you have no credit, or can’t qualify for a loan.

Disclaimer: The information contained in this article is provided for informational purposes only, should not be construed as legal advice on any subject matter and should not be relied upon as such. The author accepts no responsibility for any consequences whatsoever arising from the use of such information.