Credit cards to fund a startup? You may have initially decided to use part of your savings account to finance your startup business. However, when you checked your account balance, you’ve suddenly realized that it still isn’t enough to get your startup business up and running. As you want to launch your venture sooner than later, you’ve started looking into alternative sources of financing. One such financing source that piqued your interest is a specialized credit card aimed at startup businesses like yours. But before applying for a credit card to finance your startup business, you might want to ask first if it’s a good idea. The following should help you more easily decide whether or not to get a credit card for your startup business:
- A business credit card lets you finance your startup without having to beg for money from others.
Asking for money from a venture capitalist who’s willing to finance your startup business might be hard. After all, it defeats the purpose of being a self-made entrepreneur, so why should you let someone finance your startup business? Also, you’d rather keep any profit that your startup business would generate rather than share it with someone who isn’t directly involved in your endeavor.
So instead of begging for money from investors, you can apply for a business credit card instead so that you can have maximum control over how you want your startup to get financed.
- A business credit card won’t ask for any collateral from you.
If you take out a loan or a credit line to finance your startup business, the bank that lent you money would want collateral from you. If your startup business incurs a massive debt much later during its existence, you risk losing your assets since the bank that financed your venture has the legal right to seize your collateral from you in case you’re unable to repay your debt.
On the other hand, if you apply for a business credit card to finance your startup, you’re safe with the comforting knowledge that your assets wouldn’t get seized from you because you don’t need to place collateral in exchange of a piece of plastic.
- A business credit card may initially have a low spending limit that wouldn’t be enough to finance your startup business.
The catch though with applying for a business credit card is that the initial spending limit that a provider might give you may still not be enough to finance your startup or even less than the total outstanding balance of your savings account.
Thus, business credit cards won’t be of any help to you at all if you’ve estimated that the capital you’ll need to launch your startup might reach up to hundreds of thousands of dollars.
According to a survey jointly put out by the Community Development Offices of 12 Federal Reserve banks across the entire United States, only 31 percent of startup businesses had applied for a credit card as of 2016. Still, it’s a strong indication that startup businesses are becoming more receptive to a source of financing other than a loan or a credit line. It doesn’t mean though that you should blindly follow the lead of startup business owners who applied for a credit card to finance their ventures. After all, what may have worked for them might not work for you. Thus, you should take note of the above-listed considerations first before getting credit cards for your startup business.
Amelia Smith believes that the key to understanding something isn’t always about how good the explanation is, but how engaged you are with the learning process. As such an integral aspect of her pieces for sites such as Go Bear is to ensure that insurance and banking concerns of her readers aren’t tackled just in a technical sense, but also in a way that they can relate to their lives.