To get your small business off the ground you must have funding. One way of financing your startup is through credit cards. Before turning to credit cards, you should evaluate the pros and cons of startup financing with a credit card. In this article, you will learn about credit card financing and its applicability.

Advantages of using Credit Cards for Startup Financing

Some experts note that there are various benefits of using a credit card to finance a startup. They are:

1.      Maximizes Equity

The beauty of this financing option is that you are saved from the burden of oversight by banks and other institutions. This means that have maximum equity in your company. Therefore, you can implement new ideas to propel your startup to prosperity.

2.      No Collateral Requirement

Bank loans and lines of credit require collateral before accessing funds. This is, however, not required in credit card financing for a startup. This is because most credit cards are unsecured.

3.      No or Low-Interest Deals

Unlike conventional banks and other financial institutions, credit card issuers have zero percent interest rates. This mainly applies to new purchases and balance transfers. 

Drawbacks

Startup financing with credit cards has multiple drawbacks. They include:

1.      Risk of Credit Score Damage

Using your credit card to finance your startup can harm your credit score. Remember, your financial transactions are recorded. Therefore, defaulting payments can decline your credit score.

2.      Risk of Mixing Business and Personal Expenses

Credit card financing introduces a thin line between business and personal expenses. Therefore, you are expected to be thorough and dedicated to ensuring that accounts are in order.

3.      Potential Lawsuits

In case you default payments while using your credit card for financing, you are at risk of being sued by creditors. This may involve the possession of personal assets to recoup the debt.

Bottom Line

Startup financing with a credit card has both merits and demerits. Before taking this path, you should evaluate other financing options. Call our professionals at TCF Capital today.