Disadvantages of Using Credit Cards to Finance Business

payday-loansA business needs fund. When you are just starting to establish your own business, it means you don’t have business credit yet but a personal fund of your own. It’s hard to get a bank loan and investor funding when you’re just starting up. But when you have this hot idea on what business to build but personal savings and funding from family and friends is not available, what others choice do you have? Credit card is one of many sources.

However, using it to finance your business is risky. When you’re not on the right track in handling your finances, there’s a possibility of limit reduction. It’s important to stick to your boundary and pay on time to avoid this kind of situation. Determining the disadvantages of using your personal credit card in business financing will help you stay away from jeopardizing your only funding. Let’s now discuss the disadvantages of using it to fund your venture.

Temptation of Too Much Spending

Credit card is easy money that’s why having limitations of spending can be difficult. The comfort of swiping the card to buy everything for the business invites unnecessary consumption. Remember that too much spending means more debt.

High Interest Rates

The fact is credit card interest is five times higher than bank loans. It will take six years to pay your debt if you cannot pay your outstanding amount in full. It’s surprising but it’s happening around the world. Other card company even computes the interest base on the outstanding balance plus the current usage even if you have paid the last amount partially.

Possible Credit Limit Reduction

Paying your card on time is your priority. It’s important to know that once you forget to pay your debt, it does not only incur a higher interest but it can also lower your credit score. Limit reduction is torture if you don’t have any other source of fund. In addition, a record of bad credit standing might the cause of denied loan applications in the future.

Credit Card Fraud Exposure

Online shopping is very popular today. It means that someone might be storing your personal information their servers. You cannot detect this incident unless you receive your statement of account. Everybody who uses cards online to purchase is an object of this scam. Be cautious about secure connections because credit card information might be intercepted while it travels through the internet.

High Rate of Return Requirement

You can use credit card to fund your business venture but you must be aware that if it’s impossible to repay the balance by any business returns. Profits over forty to fifty percent is uncommon.

These lists of disadvantages urge us to shift to bank loan financing or other financial institution as soon as possible. Despite of the techniques that can be used to be careful with over spending, using credit card to finance a business is not the best idea. What’s ideal is turning to friends and family for funding if you can.