Small business owners are often faced with the decision between using their personal credit cards to make purchases or apply for small business loans. While there are advantages and disadvantages to both options, it is often a choice that comes down to spending priorities. Your credit score will affect what type of loan you qualify for and whether or not it is easy to obtain. As such, understanding your own credit score and what information lenders will look for will help you better decide which method of payment is right for you. Here are the basics when it comes to these two different payment methods.
Personal credit cards offer many perks including ease of use and rewards programs. However, they come with high interest rates and fees that can eat away at your cash flow. On the other hand, small business loans are a great way to start rebuilding your credit score. They are the preferred choice for many entrepreneurs who are looking to expand their business and increase their cash flow.
Many small business owners use personal credit cards when they first start out. They are a convenient way to manage finances until you start receiving small business loans to fund the start-up costs of the business. Unfortunately, they often come with high interest rates and very limited rewards programs. This can limit your earning potential and create the financial stress when you need a small loan quickly to jump-start your business.
Personal loans are great if you need the money right away. You don't have to wait for approval and there are no strings attached. However, there are also disadvantages when applying for a business credit card. For one thing, you will be responsible for any outstanding debt that you accrue.
You won't receive the same rewards and incentives that come with having a business credit card. You may not qualify for as much cash back or air miles. Additionally, you will generally pay higher interest rates when compared with personal credit accounts. If you make your monthly payments on time, however, they will help reduce your debt. Eventually, you may just want to switch to a personal credit account so that you can get more benefits and better rates.
As you can see, there is a substantial difference between business credit and personal credit. So what are some of the advantages of having a business credit card? First, they help build your business credit history by reporting to all of the major credit bureaus. This is very important because it makes it easier when you apply for future credit. By getting business credit, you can show potential lenders that you are able to handle credit and can make payments when you need to.
The second advantage to having a business credit card is that you get a line of credit separate from your business expenses. This . . . . . . can be a good thing if you have a large amount of business expenses, such as supplies or advertising. You can then pull money out of the account and use it for these things when needed. It can also be a good way to build your business credit history as well, because the card can be used to make purchases. The great thing about business credit cards is that you are not restricted to just cash or checks. You can still use the card online, pay your bills online, and even make purchases online!
As you can see, both personal and business credit cards give you a lot of freedom. It's important to remember though, that having a business credit card may come at a cost. You will likely pay a higher interest rate and will not be able to withdraw cash or use online purchases. Still, these are the two biggest perks of business credit cards, so you may not mind paying a higher price to get them.