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Fact of Fiction: Can you really fund a startup business with credit cards?

Sep 28, 2019


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One of the biggest rumors floating around the internet is that credit cards are not a good way to fund a startup business. This is absolutely not true!

For businesses that have been operating for 3+ years there may be a lot of options to find business financing, whereas startup business loans can be a lot harder to find.  For an established business, perhaps an SBA loan is right and you have 20% saved up to put down as a capital contribution, as required by the SBA. Or you have an IRA saved up that you want to legally roll over to start your own business.  But where can you turn if you are a startup business with no assets or cash flow? How can you possibly have a chance of starting the business of your dreams? The next big food truck in town or the best restaurant or cleaners?

This is where both personal and business credit cards are not only not a bad option, but perhaps the only real option you have to get your business off the ground.

Here are the three main reasons why business and personal credit cards are an amazing option to fund the startup of your dreams:

  1. 0% Interest Rate


0% credit cards are absolutely amazing! Imagine if you need a piece of equipment to run your business. The equipment is going to cost you $12,000 to buy. That is a lot of money to put down on day 1 of starting your business. Maybe you have hesitated to start your business for years because you were too scared to pay this much right off the bat.

If you get a 0% interest credit card for, say, 12 months, the problems of financing the equipment become a thing of the past. You simply pay for the equipment on your new credit card. All you have to do is pay the credit card company $1,000 a month for 12 months and the equipment is now owned outright by the business.

But the best part about all of this is you are paying absolutely 0 interest on the equipment. At this point the bank is literally giving you FREE MONEY. And you did not have to fill out a loan application and wait months for the bank to deny you. You simply went online, applied for credit cards, and within a week or less you have access to the capital you need to start that new restaurant you have been dreaming about your entire life.   

  1. Credit Card Rewards and Miles


When you go to apply for a credit card there are 0% interest credit cards which was already touched upon above. But there are also other amazing rewards you can get for signing up for and using a credit cards such as cash back and miles.

Don't believe people who say you cannot use a personal credit card for business purposes. You will have the most success applying for credit cards if you get a few different ones. Perhaps 1 business credit card and 2 to 3 personal credit cards.

For starters, maybe one credit card company will only give you a credit limit of $5,000 and you might need more money than that to start your business. If you get a card from, say, Chase Bank, Discover and Capital One, you could have immediate access to $25,000 to $45,000. Now you don't have to spend all of that money right away. That is another reason why we love credit cards. You simply use what you need to use to get the business off the ground.

Cash back credit cards are the most common types of cards and the simplest to understand. Whenever you make a purchase on your credit card the bank gives you a percent of that purchase back in the form of cash. Usually it is 1.5%.

There are also rotating categories where the credit card company will pay you between 3% and 5% when you make purchases on Amazon, for example. These rotating categories is where it gets crazy. So, when it comes to your business, you would buy all of the supplies you need on Amazon and get 3% to 5% cash back for those business purchases. This might not sound like a lot of money but it can be an extra few hundred or even thousand dollars in your pocket per year, depending on how much money you are spending on the business.

Miles are another amazing reward that come with credit cards. Just by putting all of your business expenses on a few of these credit cards every year, you can get a trip for your family for free. Or you can use the miles to travel for business. When you put all of your business expenses on your credit card, you can get thousands of dollars in free flights per year. Why wouldn't you use a credit card to start your business?

  1. Ability to Manage Cash Flow


Suppose you buy inventory today which costs $10,000 and the inventory will sell out in 30 days. If you put the cost of the inventory on the credit card you don't have to shell out all of that money for the inventory before you have sold it. Instead, put the inventory on the credit card and then sell the inventory.

Let's say you make $15,000 off of the inventory you purchased with your credit card. Take the $15,000, pay back the $10,000 off of your credit card and put the $5,000 difference in your checking account.

Managing cash flow is one of the biggest struggles that new business owners face. Often times new businesses know that they can sell out of a certain product in 30 days but they need the money to hold the business over until the sales are made. With credit cards this is no longer a problem for new businesses.

 

Conclusion

Credit cards should definitely be a part of any new businesses funding plan. Even if you are able to get a loan from the SBA, successfully use crowdfunding or get the money from your friends and family, why not also use credit cards to take advantage of all of these benefits?

There are 0% interest credit cards which literally means the bank is giving you the money you need to make a big purchase for FREE.  By using credit cards you can also get cash back or miles, which can save you thousands of dollars a year. Finally, you will be able to easily manage the cash flow of your business without constantly having to worry about running out of money.