Credit cards – whether personal or corporate – can be extremely useful in business. Unlike traditional business loans, they offer complete flexibility, effectively giving you a line of credit that you can draw down, pay back and reuse at will. Further, if you can’t get business finance then you will almost certainly have a personal credit card that you can use to fund your business activities. However, there are several very good reasons that you should be cautious about financing your business using your personal credit card.
1 Your business and personal finances can become interlinked
Use a personal credit card to fund your business and you become personally liable for the debt. Even if you’re operating a limited liability company, you as an individual will have to settle the debt if the business goes belly-up. If you are then left in a position where you cannot make minimum payments on the card as well as paying your mortgage and your bills, your family could find itself in real trouble.
2 You can damage your personal credit score
If you’re borrowing as an individual, late or missed payments will affect your personal credit score. A poor credit score will affect your ability to take out a mortgage in the future or any kind of personal finance, which can have serious repercussions. Of course, a damaged credit score can be rebuilt, but this is not a quick or easy task.
3 Your credit limit may not be high enough
Typically, credit cards for private individuals have a limit of a few thousand pounds, which is more than enough for everyday spending but won’t go far for a business. It’s very easy to max out your card, which in itself will impact on your credit score even if you borrow responsibly and pay back fully. Once you’ve reached your credit limit, you will have to find another source of finance – urgently.
4 It could be very expensive
Even though base rate is at a historic low of 0.25%, most credit cards have an APR well into double figures. If your bank is reluctant to provide a business loan, it may be tempting to rely on your credit card – but you could end up costing yourself a fortune.
5 You can damage your credit score – even if you repay in full
As already stated, borrowing heavily on a credit card can damage your credit score even if you behave responsibly. Most credit bureaux use an algorithm that factors in individuals’ borrowing against their credit limit and penalises those who max out their credit card. In other words, financing your business using your credit card today can restrict your ability to get personal or business credit tomorrow.
If you need to borrow for your business, talk to Cashsolv
Whether you’re borrowing to power growth or need quick finance to tame a troublesome cash flow, you don’t have to rely on your credit card. When your bank won’t lend, Cashsolv frequently will. As an alternative lender, we apply quite different criteria and offer a much simpler application process as well as a more innovative range of solutions.
If you need money fast, an emergency loan can have the funds in your account inside 24 hours. For longer-term borrowing, asset-based finance enables you to borrow against the value of your premises, plant or equipment, and because the loan is secured we can offer competitive rates of interest.
Finally, cash flow problems can be solved for good via invoice factoring or discounting. These innovative solutions allow you to borrow up to 85% of the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. Opt for factoring and we assign experienced credit control professionals to secure repayment, thus minimising the interest you pay, whilst with invoice discounting you retain control of your debtor ledger and pursue your own debts.
To learn more about these solutions and other ways in which Cashsolv can help, please visit our business finance page.