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Second City Advisors Discusses If You Should Use Credit Cards to Finance Your Startup

Should I use a credit card to finance my startup?

Having a startup can be one of the most exciting ventures you can have. However, it can also be financially draining if you don’t have enough capital to get it going. If you’re a budding entrepreneur with a big idea, you might be at a point where you’re looking for ways to get financing.

What are some ways to finance your startup?

According to Second City Advisors, a well-known finance company, there are several ways to finance your startup and each one of them has their own pros and cons. The most common ways that entrepreneurs find funding for their startup include the following:

Venture capital: Venture capital companies are those which fund innovative startups. Most of them are related to STEM, and it is owned mostly by big players within the industry. If you’re an investor with an idea that could potentially make millions, this could be your best bet.
Credit card: You can take out a credit card loan in order to fund your startup. If you have a high credit limit and you’re willing to pay some amount of interest rate which can accumulate over time, this can be your option.
Family and friends: Your loved ones can also support your startup by being sponsors. Some family members and friends are willing to give you some amount for a share of the company or paying through dividends. Others will be willing just to help.
Business loans: Some financing companies and banks are willing to fund loans for business owners. Whether it’s for raising capital or for maintaining a business, you can see if you are eligible for a business loan by contacting your bank.

In this post, we will be focusing on credit cards for financing a startup business. What can you expect when using credit card financing, and is it a good option for you? Read to know more.

Second City Advisors Discusses If You Should Use Credit Cards to Finance Your Startup

 

What can you expect with credit card financing?

According to an article in CreditCards.com, 16% of business owners now turn to credit cards to finance their business, and that percentage is steadily growing. When you seek a credit card company to finance your business, you can expect some form of interest in a long-term agreement. There are also others that offer zero interest with a short timeline such as 6-18 months. It all depends on the credit card company you will be applying for.

You can also expect easier approval especially if you already own a bank account within the company. For example, applying for a credit card loan under American Express while simultaneously having a bank account can help increase your chances of approval. It doesn’t matter as much whether you’re business seems to have earning potential for them or not–what matters more is your credit score.

Secondary City Advisors suggest that you find ways to bump up your credit score in order to have a good credit card loan. Yes, it is possible to successfully finance your startup using a credit card, but you must first ask these questions before proceeding.

Can you pay off your balance in full each month?

Business credit cards have higher credit limits and can be beneficial for startup owners. If you’re someone who knows how to pay the full balance, and not just the minimum amount each month, credit card loans may be the right choice for you. This strategy can also help you motivate in increasing your cash flow because you know the expenses to expect every month.

Do you have a good credit score?

One of the primary criteria for getting a good credit card loan is through having a good credit score. Banks and other credit card companies consider credit scores ranging from 670-850 to be within good standing. If you have a score below this range, you may want to improve your credit score by paying off bills on time and securing payment for your other loans.

Do you objectively see your startup as having an earning potential?

Being realistic about the possible earnings of your business is key to being able to pay off its capital and more. Sit down and really think about the potential market of your business and if you will be able to make profits from it within a considerable time frame. The worst-case scenario of taking out a credit card loan for a startup is getting bankrupt and stuck with a credit card debt. Second City Advisors suggest that you must have a backup plan such as applying for debt consolidation services.

So, is financing your startup with a credit card a wise option for you? These questions will hopefully guide you into making that big decision

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Adrian Rubin

Adrian Rubin is a freelancer, creative arts director for various marketing and advertising companies in the New York area. Adrian Rubin specializes in making memorable campaigns. You can learn more about his services here: AdrianRubin.net
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