How to Use a Credit Card for Startup Financing & Funding

The Workings of Loans via Credit Cards for Small Business Startup Companies

You may start a business but feel lost before you get very far. Financing a business is confusing and frustrating, especially if one has had no prior experience in business management. However, there might be a solution to all this:

1. Financing for Startup Equipment:

This sort of loans is a small one that uses the purchased equipment as collateral. This puts the lender at a bit more risk than otherwise, since they’re investing with a completely new venture. They would also be lending the money at an interest rate that relatively lower than other kinds of loans.

This higher risk means a bit more benefit to the borrowing company. The revenue generated from the equipment used as collateral would be helpful in making payments for itself.

Applying for Finances to Purchase Start-up Equipment:

  • Make sure your credit score is up to par when you apply for a startup equipment loan. To be safe, stay on the right side of 680.
  • Get a vendor quote for the equipment you require.
  • Get a statement outlining how you’d be using the equipment.
  • Get a credit report with all the details.
  • Weigh the pros and cons. Don’t forget that the depreciation of your collateral equipment can get you tax benefits while you’re still paying off the loan!

2. Credit Cards for Business

There are credits cards especially formulated for business purposes. These give us something called ‘revolving credit’. One can draw money whenever they want and in whatever amount – with ideally no red tape involved.

Of course, there’d be a limit to how much you can withdraw. There’d also be a rate of interest as well as a system through which one can gain traveler miles, consumer points, or even cash.

Reasons for Using a Business Credit Card for Startups:

There are several advantages involved in utilizing a credit card like the one described above. These are especially attractive for owners of small businesses who are fresh in the market:

  • One can keep business and personal expenses separate
  • This would enable you to start forming some business credit
  • Online buying and selling can be achieved easily
  • There would be a buffer in the cash flow that one could dip into when there’s an emergency
  • The rewards can give several benefits, both monetary and otherwise.

Utilizing a Business Credit Card in the Best Manner

When you get access to such a card, it’s best to use it wisely and sparingly. It may be a highly convenient choice, but there is a very high risk of spending too much.  Making payments on time and being careful not to use too much at a time—these are the keys to maintaining a high credit score.

Credit Line Builder

Having a credit line builder may not be one of the most common loaning methods, but it can be a lifesaver for new entrepreneurs who want to spend as little as possible. With this, you’d be able to work alongside a financing company, which would enable you to get several business credits cards. Having those cards at the same time would save a lot of time and effort.

The amount of approved credit would determine the number of credits card you qualify for. This would then enable one to make purchases, build up credit for your business, etc.

Things to Remember

There are several things to remember in order to stay afloat when handling all these credit cards:

  • The credit line builder is not a line of credit for your business.
  • Don’t spend more than necessary with any one card.
  • Use the line builder as a means to achieve your goals, not a safety net to help you through.
  • Be sure to maintain a personal credit scoring of above 700 points in order to stay qualified.

The Cost of a Small Startup Business Loan

1. For Startup Equipment:

In this loan, the interest rates could be unstable. the average, however, is twenty percent. It may cost a bit more, but the initial costs would be fulfilled in part.

Example: If the equipment you want costs $50,000, the whole of which is financed by a loan at 20% interest, you would pay $60,000 to the lender. The loan usually needs to be paid back by the time the predicted life of that equipment comes to an end. If you use the machine for ten years, you’d just have to pay a thousand dollars a month. The machine is also making you a tidy profit in that time, so that’s not a bad option at all!

2. Business Credit Cards:

The APRs for such credit cards are in the range of 13% and 20%. There are also inclusions of fees for foreign transactions, late payments, balance transfers, and overall annual fees for renewal. The upsides, however, include the possibility of zero-interest loans.

These credit cards are an opportunity to make the best purchases for your new venture. However, one should stay alert about the ending time for the grace period.

Another thing to watch out for is the fluctuation in interest rates. Due dates can also come and go with alarming irregularity. You may be warned about some of these changes, but not always. Hence, keep your eyes open and don’t even think about delaying a payment unless you absolutely have to!

3. Credit Line Builder

This loan method is the same as for regular business credit card, but there is a difference. You have several credit cards to use at the same time. This means the risk is also doubled, and the alertness needs to multiply in order to deal with all the cards at once. Having a late payment across many cards could irreparably hurt your credit score.

Final Advice for Building Startup Business Credit

If you stay on top of your payments and spend below the limit each time, your credit is likely to soar in no time! This would also give you more chances at the capital provided by credit line builders. Finally, you’d just have to pay a financing company their one-time fee for their original services. They would be filing your application for business credit cards, and hence be entitled to a certain portion of the amount you receive.

Staff