4 Reasons Not to Go Into Business Credit Card Debt

The following is a guest post from PT of PT Money.

If you are starting up a small business, or even if you’ve been running your business for a while, you may be considering a business credit card. There’s certainly nothing wrong with having a credit card for your business and using it as a revolving account to help you manage cash flow issues. Or simply to earn rewards. However, you should definitely think twice before you carry a balance on your business credit card and go into debt. Here are 4 good reasons not to use credit cards to prop up your business:

1. Better Options to Finance Your Small Business

When you start up your business, don’t use debt to finance it. Use your own equity. Personal savings is the best way to start up a business. So if you’re considering your own small business, start saving and be ready to fund your project with your own dollars until you are able to cash flow it. If the business doesn’t work, you’re not left with a bunch of debt. Easier said than done though, right?

Another way to fund your business is to take advantage of small business loan or line of credit. Interest rates are much more favorable than business credit cards. And you’ll likely get a nice discount if it’s with the bank that you do your checking with. To find out more about small business loans, see the Small Business Administration’s financial assistance page.

2. Increases Your Small Business Expenses

When you bring on debt, you bring on interest payments. Interest charges increase your expenses and hurt your overall profitability. Credit cards have some of the highest interest charges. You’ll likely be paying 15% or more interest for borrowing money using a business credit card. This is an expense your growing business shouldn’t have to take on. Skip the credit card debt, and use the extra money to fund a SEP IRA.

3. Business Cards Not Covered Under the CARD Act

The Credit Card Accountability, Responsibility and Disclosure (CARD) Act that just came into effect didn’t apply to business credit cards. Therefore, the credit card company can still play the same games with your business credit card as they did prior to the act. They can raise your rates without notice, apply payments to whatever balance type they want (i.e. credit card cash advance vs. purchase), and switch up due dates on you. When you stick to other forms of debt, or your own cash, you don’t have to deal with these games.

4. Makes You Less Attractive to Future Investment

Finally, having a bunch of business credit card debt makes you less attractive to any future partners or investors. It might even affect which suppliers want to work with you. They don’t want to send you product if they know they can’t count on payment from you because you’re having to pay credit card debts. Stay away from the credit card debt and know that you look strong and flexible to anyone who views your business.

This post was provided by PT of PT Money. Visit PT Money: Personal Finance to learn more about credit cards and investing. See his reviews of the best online stock brokers.