Financing Your Business with Credit Cards
Two common ways small businesses get start-up capital are savings and credit cards. While I recommend savings as the best way to go, using credit cards instead of a bank loan makes sense when you don’t have any collateral to offer a lender. The problem comes when you’re years into your business and you’re continuing to use your credit cards on a regular basis, or are trying to pay them down with no success.
The best way to use credit cards in your business is to purchase large items, like new equipment for expansion (we’ll cover the best ways to do THAT in a future column!), printing or production costs, or training. These are single shot expenses that offer a concrete payoff, and come with a finite payment amount until the debt is repaid.
What if you’re using your credit cards to float your monthly expenses?
It’s time to look at your monthly expenses and the amount you’re drawing out of the business for yourself.
Try this experiment:
- Go one month without having anything “automatically” charged to your credit card, and without using your credit cards to pay for anything.
- Use only an automated debit card withdrawal, pay by check, or use cash (save your receipts!).
- If you have more month left over than money, you’ll know it’s time to pare back.
- If you have more cash left over than month, then you’ll know you’re using your credit cards wisely, as long as your balance isn’t going up each month!
Now, what if your balance continues to climb, or you’re paying down a chunk, charging it back up, then paying it down again?
Here’s the strategy I give folks in my Break the Debt Cycle – For Good! workbook and CD.
- Start paying JUST the minimum payment, charge absolutely nothing new to the card, and save the extra chunks you had been throwing at the balance each month.
- Build the savings cushion, then increase your payments until the bill is paid.
- You’ll live within the cash flow of your business and set aside money for future unexpected expenses.
- The savings are there to take care of extra bills without adding to your debt.
- You’ll slowly and steadily get out of debt AND you’ll find you have much more creativity!
Share with Us and Others!
- Please share with us how you financially started your business.
- How are you financing your business now?
- Do you need more help with credit card debt?
- What are you doing that helps?
- What are you doing and is NOT working?
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Paula Langguth Ryan is a mediation and marketing maven, specializing in financial issues for small businesses. She’s the creator of the Supersonic Prosperity Oriented Copywriting System http://www.paulalangguthryan.com/shop/supersonic-copywriting/ and provides strategic financial consulting services to small business owners. She’s also the author of Bounce Back From Bankruptcy: A Step-By-Step Guide to Getting Back on Your Financial Feet and the forthcoming Break the Debt Cycle – For Good! You can follow her on Twitter at copytamer and get free resources at www.paulalangguthryan.com. If you need help or assist please email us at email@example.com.