More and more Americans are becoming entrepreneurs in the modern, accessible marketplace. But your pursuit of this American dream starts with figuring out how to finance your business endeavor. Many people turn to credit cards as a primary source of business credit, but this has a number of risks that should often be overcome through more traditional business loans.
What are some of these hazards? Here's what you need to know.
1. Credit Cards Limit Credit. Credit cards aren't designed to cover the long-term financing needs of large asset purchases or many months of operational expenses. While individual cardholders' credit limits vary, they're often much lower than a person can get through a formal business loan application. Having too little money on hand when the business is still finding its footing is a big reason for many failures.
2. Credit Cards Are Very Connected. Personal credit cards are intimately linked with their owner's credit and finances. This is fine when you buy a new outfit or a dinner out for personal pleasure. However, when you use that money to establish a separate business entity, financing with a personal card intermingles your own finances with the business finances in ways that make it hard to protect yourself if things go wrong.
3. Credit Cards Are Too Easy. While discussions about business funding problems usually focus on how difficult it is to get financing, there is another problem: credit that's too easy. When you can just pull out a credit card and keep charging goods and services, the entrepreneur may find themselves with a quickly spiraling debt problem. The better way is to use a more stable funding source that allows credit when it's needed but doesn't encourage you to get in over your head.
4. Credit Cards Don't Establish Credit. As an owner, your goal should be to establish your company as a stable, financially independent business entity that doesn't rely on your personal performance. However, if you finance it on your own credit, the company doesn't establish its own creditworthiness. Financing through traditional loan channels allows the entity to stand on its own.
Want to know more about your options when it comes to business funding? Start by consulting with a business funding service in your area. They'll work with you to identify the best sources of startup and operating funds so you can find what fits your goals best. Call today to make an appointment or find answers to your financial questions.Share