Financing with small business credit cards

Banks are becoming more reluctant than ever to fund new business ventures because of today’s economic troubles. With fewer loans being granted to the small business sector, more entrepreneurs are looking at credit card funding to help them get their ventures up and running.

Financing with small business credit cards

Small Business Credit Cards

Credit cards carry a variable interest rate, while SBA loans offer a fixed amount of money at an interest rate capped by the government. These traditional loans are safer than credit cards, but have dried up throughout the recession.

According to Richard Quigley, president of Chase Business Cards, small business owners are the ones that are going to turn around the economy. Banks recognize that small business lending is becoming more and more viable and are starting to offer new small business credit card options.

Pros of a Small Business Credit Card

Keeping business and personal transactions separate is always a good idea. Tax issues and money management problems can be avoided by using separate cards.
Building business credit can be a useful way of accessing more funds further down the line as the business grows.
Small business credit card owners can avail themselves of discounts and rewards by using their cards and this can lower expenses when it comes to certain items, such as stationary, travel and phone services.
Cards can be provided to employees with preset limits which can make it easier to control business spending.
Many cards offer a 21 day grace period before payments need to be made, which can help cash flow.

Cons of Small Business Credit Cards

A business owner can be held personally liable for problems with the company’s credit account if repayments are not met on time, affecting his or her personal credit score.
Higher interest rates are also usually charged on business credit cards compared to personal credit cards or traditional small business loans. Sometimes as much as 30% interest is charged.
Staff can abuse credit cards by making personal purchases. The business owner needs to be vigilant about this potential problem.
A business owner cannot dispute charges on the account. Since a business credit card is considered to be owned by a company, not by an individual, it is excluded from the Consumer’s Bill of Rights.
Because of the high interest rates incurred each month, along with the additional charges (late penalties, transactions fees, etc); a business owner can spiral into debt easily. The risk is compounded if there is more than one business credit card in use.

Where to Apply for Small Business Credit Cards?

small business credit cards

Shopping online is one of the best ways to find cards with rewards or no annual fees. Approaching a lender where the business owner has an existing relationship may also help in negotiating a good business credit card deal.

How to Get Business Loans with Bad Credit

Many banks and financial institutions do offer bad credit business loans. To get a loan it is important to have a knowledge of the implications of bad credit, how it is measured in the industry and how to choose the best bad credit loan.

Credit scores, payment history and credit reports are features that lenders often look into. As bad credit business loans often attract a high rate of interest, a good place to start is to shop online to compare what loans are available and what interest rates a borrower can expect to pay.

Secured Business Loans for Bad Credit

A secured lending agreement will tie the assets or collateral of a small business to the lending agreement itself. If the business cannot meet payments, the lender can seize company property, that is, buildings or equipment and sell the assets for repayment purposes. A secured loan is usually considered to be a lower risk and so the interest rate will typically be lower than in the case of an unsecured loan.

Secured business loans are generally open to all borrowers, irrespective of credit history and shopping for a business loan online a borrower can often find faster loan approval, longer repayments and better interest rates.

Unsecured Bad Credit Business Loans

The unsecured loan (also known as a signature loan) means there is no collateral tied to the loan. The risk is higher for the lender and the interest rate is usually higher.

An unsecured business loan leaves the business responsible for the repayments. This type of loan may take the form of a cash advance.

Lenders offering this kind of business loan base their offer on future credit card sales and do not require collateral, financial records or tax returns and they allow for smaller payments when business is slow.

However, the interest rate charged is typically very high, as much as 30% or more. If the business venture does not start turning a profit quite soon, the risk is that all profits could go towards trying to keep ahead of repayments.

Business cash advance lenders typically cater to small business owners who do not qualify for traditional methods of business financing, whether it is due to bad credit or lack of collateral. Still, even small business owners who do meet bank requirements, but need fast cash, or prefer flexible repayments can benefit from the business cash advance.

Financing with small business

Lending Criteria for Bad Credit Business Advances

Typically lenders require that the business:

Has been operating for at least one year
Accepts credit cards as a form of payment
Has no judgments or bankruptcies
Has acceptable personal and business credit
Is in good standing with landlord and business owner can produce a lease agreement
Can provide bank statements and credit card processing statements over a six month period
Is in the restaurant, retail or service business

There are many institutions besides banks that offer bad credit business loans, so if a borrower gets turned down by one lender, there are more to try. However, a borrower always should understand exactly what he or she is getting into and read any contract thoroughly before making a commitment.