One question that often pops up when I’m working with new business owners is how they can secure the funds to get their business off the ground and keep it soaring. Whether you’re just starting or looking to scale, understanding the best funding options is key to keeping your business afloat and taking it to the next level.
Business Credit Cards: Your Go-To for Flexible Financing
Pros:
1. Quick Cash Access:
Business credit cards give you fast access to cash, making them a great choice for handling everyday expenses or unexpected costs.
2. Rewards and Perks:
A lot of business credit cards offer rewards like cashback, travel points, and discounts on business-related purchases. These can add up, especially if you strategically use the card for regular expenses.
3. Keeping Business and Personal Finances Separate:
Using a business credit card helps keep your business expenses separate from your personal ones. This separation makes bookkeeping easier and can make tax time less of a headache.
4. Building Business Credit:
By using a business credit card responsibly and paying off the balance on time, you can start building your business credit. This credit history will come in handy if you need larger loans down the line.
Cons:
1. High-Interest Rates:
If you carry a balance from month to month, the interest can pile up fast. Business credit cards often have higher interest rates than other forms of financing, which can make them pricey if not managed carefully.
2. Credit Limits:
Business credit cards usually have lower credit limits compared to loans. If you need a lot of capital, a credit card might not provide enough funding.
Can You Get a Business Credit Card with a New Business?
Yes, you can get a business credit card even if your business is new, but the application may rely on your personal credit score and financial history. Lenders will likely look at your personal creditworthiness since your business doesn’t have an established credit history yet. While this can be a plus if you have a strong personal credit score, it also means your personal finances are tied to the business card, upping your personal financial risk.
Personal Loans: A Solid Choice for New Businesses
Pros:
1. Lump Sum of Cash:
Personal loans give you a lump sum of money upfront, which can be useful for covering larger expenses like equipment purchases, inventory, or initial setup costs.
2. Lower Interest Rates:
Personal loans often have lower interest rates compared to credit cards, especially if you have good credit. This can make them a more cost-effective option for funding big investments.
3. Fixed Repayment Terms:
With a personal loan, you’ll have a fixed repayment schedule, which can make budgeting easier. You know exactly how much you need to pay each month, and the loan will be paid off at the end of the term.
Cons:
1. Personal Liability:
Taking out a personal loan means you’re personally on the hook for the debt. If your business hits a rough patch, you’re still responsible for repaying the loan, which could impact your personal financial situation.
2. Limited to Your Creditworthiness:
The amount you can borrow through a personal loan depends on your credit score and financial history. If you have a limited credit history or a lower credit score, you may not qualify for the amount you need or could face higher interest rates.
Mixing It Up: When It Makes Sense
In some cases, it might make sense to use both a business credit card and a personal loan to fund your small business. This strategy lets you take advantage of the benefits of both tools while offsetting their respective downsides.
For example:
- Use a Personal Loan for Big Expenses: If you need to make a big investment, like buying equipment or securing a workspace, a personal loan might be your best bet due to its lower interest rates and fixed repayment terms.
- Use a Business Credit Card for Day-to-Day Operational Costs: A business credit card can be perfect for managing cash flow, handling daily expenses, and racking up rewards. Just make sure to pay off the balance each month to avoid high-interest charges.
Wrapping Up
Deciding whether to use a business credit card, a personal loan, or both depends on your business’s specific needs, your financial situation, and your risk tolerance. Keep in mind, it’s not just about getting your hands on the funds, but also about leveraging them strategically to fuel growth while keeping your financial health in check. If you’re feeling a bit unsure about which option is your perfect match, consider linking up with a financial advisor or fractional CFO. They can offer you customized advice that’s tailored to your unique situation.
