Plenty of small business owners use credit cards just like everyone else uses them: for Starbucks coffees, Friday night dinners, and gas for the car.
But if you think about it, every time you use a business credit card, you're taking out a miniature loan. It's conceptually a line of credit, letting you draw and pay on what you need. (Though there are a few important differences, too.) It's just another way to package that age-old concept of borrowing money and paying interest.
So, you may be using a business credit card for small, daily expenses, but have you ever evaluated using it as a way to finance a larger business purchase? Perhaps instead of taking out a loan? Is it ever a good idea to finance your business with a credit card?
When is it a Good Idea?
Here are a few scenarios when using a business credit card instead of another sort of financing, like a small business loan, makes sense.
1. Lower APR than a Loan
Credit cards usually have high APRs--that is, Annual Percentage Rates, or the cost of the money you're borrowing--but depending on your business's financials, its age, and your personal credit, you might still be better off with a credit card than with a business loan. If all you qualify for is a more expensive loan like a short-term loan, there is a chance the APR on a business credit card may be lower. Do the math, and figure out what makes sense for your situation.
Also, many credit cards offer 0% introductory APRs or similar deals. Take full advantage of promotions like these and you can save big time on your business purchases.
2. Don't Need Liquid Cash
If you can manage your business's finances with credit, not liquid cash, then a credit card could be of use. This reason is more of a necessity, to be honest--you can't use a credit card if you need your capital in cash--but you might consider swiping plastic for your credit-oriented charges and saving your cash for when you need it.
3. Quick, Fast, and Right Away
If time is of the essence, then a credit card will give you much more flexibility than a business loan would. A bank loan might take weeks or even months, and they're few and far between for small business owners. You could potentially secure some financing in a matter of days--or even hours--if you looked into alternative lending but fast money is expensive money. A credit card could help you deal with those unexpected costs and unforeseen circumstances without breaking the bank.
4. You're Sure You Can Pay
This is the real kicker--only use your credit card if you're sure you can pay it back on time and in full.
Your return on investment (ROI) has to be higher than what you'll pay to borrow, or else you're just losing money. It's simple math: If what you borrow is more than what you make by borrowing, then you'll wind up in the red. Plan out your purchases beforehand to make sure they'll profit your business.
This logic applies to every kind of loan--including credit cards. While you can pay late, their higher interest rates will punish you for your tardiness... And they won't be kind to your bank account.
Essentially, it all boils down to reading the fine print and acting like a responsible borrower. If you're capable of both those things, then managing your small business's finances with a credit card--not necessarily all of it, but at least partially--could be a smart move to make.