Funding your Business with Credit Cards

Learn how to fund your business with credit cards. Includes the top 10 small business credit cards, pros and cons, and frequently asked questions.

Updated on November 4th, 2019

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Funding your business with a credit card, like all financing options, has benefits and drawbacks. It's best for entrepreneurs with healthy credit records, as well as those who do not qualify for a bank loan because their business is under two years old.

Below, we take a look at the pros and cons of funding your business with a credit card and round up the best business credit cards to finance your small business.

Also Read:

How to Find a Financial Backer – Learn more about securing investments from individuals or financial institutions.

Best Credit Cards to Fund your Small Business:

Credit Card

Variable APR

Annual Fee

Review

Capital One Spark Cash for Business

19.24%

$0.00 for the first year; $95.00 thereafter

Free international transactions, but requires a great credit score.

Chase Ink Business Cash Credit Card

15.49% - 21.49% after first year

$0.00

No APR during the first year, travel perks, though spending caps can be restricting.

Chase Ink Business Preferred Credit Card

18.24% - 23.24%

$95.00

Zero foreign fees and good customer support, but benefits may be constrained by T&Cs.

CitiBusiness/AAdvantage Platinum Select World Mastercard

17.74% - 25.74%

$0.00 for the first year; $99.00 thereafter

Free foreign transactions and generous benefits when traveling with American Airlines.

American Express Business Platinum Card from AMEX OPEN

20.24%

$595.00

High annual fee, but worthwhile if you travel frequently.

Business Gold Rewards Card from American Express

16.24% - to 24.24%

$295.00

Provides cash management reports, and rewards points are transferable.

Capital One Spark Miles for Business

19.24%

$0.00 for the first year; $95.00 thereafter

Tailored spending reports and unlimited travel rewards, but requires a high credit score.

Chase Ink Business Unlimited

15.49% - 21.49% after first year

$0.00

Zero annual fee and no APR for the first year, but foreign transactions incur charges.

Gold Delta SkyMiles Business Credit Card from American Express

17.74% - 26.74%

$0.00 for the first year; $95.00 thereafter

No international fees, but cannot be used at small shops.

Starwood Preferred Guest Business Credit Card from American Express

17.99% - 26.99%

$0.00 for the first year; $95.00 thereafter

Travel points are accepted by tons of airlines and hotels, but no cash back rewards.

Pros and Cons of Funding your Business with Credit Cards:

Pros:

1. Easy to obtain.

Business credits cards are easy to obtain if you have a healthy credit record and already have one or more personal credit cards in your name. Plus, you don't have to be in business for a certain length of time to qualify (as with lines of credit and SBA loans). The application process is usually easy and you can apply online in minutes.

2. 0% intro APR.

Most credit card issuers offer a 0% introductory annual percentage rate (APR) on purchases and no annual fees for the first year, meaning you won't have to make interest payments until the introductory period is over, as long as you remain within the limit. This will give your business time to grow. The key is to pay your balance in full before the intro period ends and interest charges are added.

3. Receive cash bonuses and rewards.

Nearly all business credit cards offer cash bonuses, rewards, and even travel points. For example, with the Chase Ink Business Preferred Credit Card, you can earn 80,000 bonus points (equivalent to $1,000 in travel rewards) if you spend $5,000 within 3 months of opening your account.

4. Helps to separate personal and business finances.

Using your business credit card for expenses allows you to separate your personal and business finances, which helps with record-keeping and tracking employee spending.

5. No collateral required.

Unlike a traditional bank loan where you need collateral to secure the loan, you do not need collateral to get a small business credit card.

Cons:

1. You will be held personally liable if anything goes wrong.

Credit card providers typically require a personal guarantee so that if you fail to pay your installments, you are personally liable to pay off all debt, putting your company and personal assets at risk.

2. You can damage your personal credit score if you miss payments.

Should you fall behind on your payments, you will likely be charged a penalty APR and take a knock to your credit score. This will harm your chances of acquiring traditional small business loans in future.

3. More expensive in the long-run.

When the introductory period expires, the average APR on your credit card will range between 15.49% and 26.99%. These rates are much higher than small business startup loans and SBA loans which range from 4% to 15% respectively. This, coupled with additional fees, could lead to large balances if you don't pay off your credit card in full.

4. Lower limits compared to other financing options.

Because they're unsecured, most credit cards have a spending limit of $50,000, which may not be enough to finance your business. Comparatively, you can get up to $1 million with a business line of credit or up to $500,000 with an SBA loan.

How to fund a new business with credit cards:
  1. Find a credit card with a top-notch rewards program that suits your business needs.
  2. Make sure that you understand all the fees, including APR, late fees and annual fees.
  3. Use your credit card for business expenses only.
  4. Make sure that you pre-approve all purchases made by employees.
  5. If you can afford it, pay off your balance in full every month to avoid interest charges, late fees, and penalties.

FAQs:

Can I use a credit card to start a business?

Yes, you can. If you need financing of less than $50,000 and don't qualify for a traditional loan because you haven't been in business for very long, using a credit card to fund your business is a viable option. You'll want to consider the pros and cons before making a decision.

Can I use my personal credit card for my business?

Experts advise against using your personal credit card to finance your business because it's best to keep your personal and business finances separate for record-keeping purposes. Business credit cards also offer higher spending limits compared to personal credit cards.

Is it a good idea to fund your business with credit cards?

While considered risky, funding your business with a credit card can work if you pay your monthly installments on time or if you pay off your balance and make use of the cash bonuses and rewards.