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Business Financing with Credit Cards
By Lewiston Talbot, BusinessNewsfeed Small Business Correspondent
Copyright 2008, all rights reserved.

FINANCING A NEW BUSINESS STARTUP is often the first of many daunting tasks encountered by the business entrepreneur considering all of the available new business financing options available. One of the least understood options for financing a small business in its early stages is using a business credit card with cash back rewards to help finance the many expenses incurred by the newly launched business venture, and generate a percentage of each purchase in cash bonuses.

At a time when even the IRS will let you charge your income taxes on a credit card, using a credit card to supplement critical startup funds for a small business is not at all uncommon. Credit card business financing can be an attractive new business finance option for the self-employed business owner. Depending on the line of credit available, having a business credit card with low APR and monthly interest rates can mean the difference between success and failure for the new business entrepreneur.

If you are considering using a credit card to finance your newly started business, there are some important considerations and calculations that will assist the small business owner in avoiding some of the pitfalls of generating business debt early in the business start-up phase and potentially constricting much needed capital for future business development and expansion.

Choosing the Best Credit Card for Business Financing

All of the major credit card companies, including Master Card, American Express, Visa, and Citi, regularly promote business credit card offers with low or 0% APR introductory rates. It's of critical importance to read all of the fine print with any credit card offer, as that low introductory rate for credit cards for new business ventures can balloon to unmanageable amounts in the event you are unable to pay the full amount due each month or miss a payment entirely.

Subsequently, before considering the option of financing your new business venture with a credit card, you must first outline your anticipated business expenses in detail and determine what type of business credit card is best for your anticipated business expenses, monthly income, and unforeseen contingencies.

Business Credit Card with Cash Back Rewards

A rewards credit card for business might be the optimal choice for your small business start-up if you are anticipating a consistent stream of daily expenses, and especially if you will be laying out significant expenses for start up purposes. If your new business will require office rental, office supplies, computer equipment and related online business purchases and expenses, a business rewards card gives you the convenience of being able to charge all of your new business expenses on the card and receive immediate cash back rewards.

Depending on the cash back percentage offered by your particular business rewards card, you can effectively enjoy a discount on all of your business-related purchases of up to 5%. Let's say that you anticipate $10,000 in business startup expenses each month your first year of business. If you charged all of those expenses on a 5% cash back credit card for your business, you would receive a monthly cashback discount of $500 on your purchases. Those cashback rewards accumulate over time, and in one year you could receive over $6,000 in cash back bonuses, in effect financing about 5% of business startup expenses.

In the alternative, if you opted for traditional business financing and you were to take a small business loan in the amount of $6,000 to help finance your new business startup costs, you would likely end up paying more in loan processing and interest over the year.

Things to Consider Before Starting a Business with Credit Card Financing

What is often overlooked however by those opting to finance their business with credit cards are the monthly accruing costs of using a business credit card for small business start-up expenses. There can be a significant increase in monthly payments should the cardholder not be able to pay in full and on time even just one minimum monthly credit card payment owed.

As with any decision you make when launching your new small business, know your business plan and your contingency planning options in advance before deciding on any of the many available options to finance your own business. Using credit cards to finance new businesses can be a fiscally sound approach for short-term start up financing, but only when the new business entrepreneur has a fully developed long-term business plan and the resources for unexpected contingencies as they arise in the annual cycle of any business.

Pros and Cons of Financing a New Business with a Credit Card

When contemplating the pros and cons of using a business rewards card to help fund your new endeavor, you must:

1. First determine your monthly expenses for each of the first 12 months of your new business start up phase

2. Determine how much you can afford to pay in monthly credit card charges.

3. Identify the best business credit card offer with the lowest APR, best rewards program, and most favorable terms over the short- and long-term.

4. Clarify what would be the worst case scenario in your business performance, and how that might impact your ability to make monthly payments on your credit card balance.

5. Determine what your monthly payments would be if you were unable to pay any monthly credit card balance in part or in full.

6. Determine how much cash, separate and apart from credit card financing or other third party loans or cash advance, you readily have in savings for contingencies such as a periodic slump in business, unexpected business expenses, illness that precludes you from running your business, and the like.

7. Make your first bill payment each month the full monthly amount due on your business credit card balance to maintain the best APR, lowest monthly payments and low annual interest rate.

Once you have determined your monthly, quarterly, and annual expenses for your new business venture, you will be better prepared to match your anticipated business expenses with the business cash back credit card or rewards credit card that is best suited to your overall business plan and anticipated daily, monthly, and yearly expenses and revenues.

Consider Getting a Business Credit Card with Travel Rewards

If your new business will require little in the way of upfront purchase of supplies, equipment or services, a business card with cash back rewards may not be the best credit card financing option for you, and you may be better financed with a different type of credit card for business purposes. Let's say that your new business will require little in the way of start-up outlay but will however involve significant business travel and related hotel, rental car, and dining expenses. In this case, the new business owner will want to consider instead a business travel card that includes airline rewards and travel points that effectively finance future business travel. Find more information about business travel rewards in Business Credit Cards for Travel.

Selecting the Best Business Credit Card for New Businesses

Before you apply for a credit card with cash back rewards for your new business, know how much the credit card business financing is going to cost you monthly, quarterly, and annually. Determine what might increase your monthly business credit card payments, and have solid contingency planning in place to avoid that situation.

Match the best business cash back credit card with your anticipated purchasing activities and expenses, and avoid the temptation to get any credit card for your new business just because it has the lowest introductory APR. That 0% APR business credit card you got in the mail today will be of little use to you tomorrow to supplement your new business financing if the cash back percentage is only 1%, or the rewards are for future purchases you will never make and the travel points are with airlines you'll never fly.

In summary, never accumulate any business related credit card debt that is greater than the amount your projected business revenues can pay off in full within one year. Maintain in contingency savings at least three months' of anticipated minimum monthly payments to ensure that the convenience of readily available short-term financing for your new business with a rewards or cash back credit card doesn't become a liability that you will be paying long-term at the expense of growing and developing your small business venture into a big business adventure.

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