How Far Should You Depend on a Business Credit Card

Nearly nine out of ten small business owners use a business credit card. Which would be a very encouraging  statistic, if they went for the plastic at the right times. Unfortunately, there is some evidence that shows that small entrepreneurs rely too  heavily on their plastic. Especially when they are pressed for money when they are starting out. About two out of three startups make the mistake of relying on their plastic for nearly everything when they start up. They rack up credit card debt this way. For every $1000 of debt that a startup racks up, the owner can count on a 2% lower chance of actually succeeding (and not falling prey at some point to poor finances).

Why is it such a bad thing to depend on a business credit card to fund a startup?

Well, to begin with, the general argument here sems to be that when you have a small business credit card, that it effectively keeps your personal finances separate from your business finances. If you use your personal credit card, it will affect your personal standing. When you use your business credit card though, the feeling is that it can't affect you even if you are unable to pay up.

This isn't really the way to see it though. Even if it is a business card that you can't keep up with, you still do owe the money that you spend on it. You certainly can't ignore having to pay your debts on your business credit card.

The spending limit you have on a business credit card does depend on how much credit standing you have and how much income you make. When you're young and starting out in business, of course, you aren't going to be great in these areas. And even if you do manage to get the highest possible spending limits on your card, it is usually still not going to be sufficient for your business needs. All of which, goes to only say this – you cannot depend too much on a credit card to bankroll a business.

Even if you do feel that the limit you have on your credit card is enough to fund your business on, you do have to admit that it's very expensive funding. Business credit cards charge you about a 15% interest rate. Even a small business downturn could make it difficult for you to make the monthly payments needed for such high interest rates.

Entrepreneurs nevertheless, do try to go as far as they possible can on their business credit cards, for the simple reason that this kind of credit is easier to come by.

They do need to think of something other than the easiest funding method available.