Can I avoid all the hassle of getting a bank loan by financing my small business with credit cards?
BY Mie-Yun Lee
Offices & Operations mentor Mie-Yun Lee responds: With the state of the economy, banks and venture capitalists aren't as willing to hand over money to small businesses as they once were. Credit cards may seem like an easy and convenient alternative, but that convenience comes with big risks -- severe debt or even bankruptcy.
If you do decide to get started with plastic, you're not alone. It's becoming a popular trend with small businesses. But that doesn't mean small businesses aren't getting in over their heads in debt. You can do your best to keep your credit card balances in your control by closely monitoring your monthly bills. At the same time, you should try to take advantage of the extras some cards offer.
Your main concern should be interest rates. You can find them as low as 4 or 5%. But the key word here is introductory, so make sure you know when that rate will change because it could increase to 20%. When the rate increases, request a lower rate and if the answer's no, transfer the balance to a card with a lower rate.
Look into cards with extras that can benefit your business - like cards that offer frequent flier miles. It's also worth looking into whether or not a certain store you use frequently has its own credit card. For example, if you use the same office supply store, they'll send discounts and coupons your way if you open a credit card account with them.
It seems like an obvious tip, but you want to make sure you can make those monthly payments to keep your credit report clean (your best bet is to completely pay off your balances monthly if possible). And always keep a close eye on your monthly balances for changes in interest rates, extra fees, and suspicious charges.
Financing your business with credit is risky business, but if you approach it cautiously, it can be done without getting yourself, and your business, into trouble.