The Easy Small Business Funding Option

January 8th, 2012 | Posted in Debt Relief

Small business credit cards extend an simple way to capitalize a new or existing company. That’s the tactic I used when launching my business, but I did make some snafus en route.

Since my organization is mostly on the web, I did not require much of start up money. I did not want to go to a bank or credit union to get start up money or open a business line of credit.

Online businesses do not require much start up financing since things like web hosting is economical. I could also develop my own blogs using WordPress, which is free. All I needed was a few thousand dollars for every little thing to start my business, including a small-scale place to work, business insurance, utilities, and web services.

Since I could get more than enough capital via small business credit cards. I decided that would be the best solution to cover all my start-up and ongoing my costs.

Small business credit cards ended up providing ample capital and it was uncomplicated to acquire. The first card I applied for and received was a US Bank Business Visa. There was an annual fee of $75 but I justified it with the points I’d earn. These points could be used for travel and other rewards like gift cards to major hotel chains. I found the Visa card controllable for the first few years as I was able to pay off the balance in full and avoid the 9 % interest on balances.

Over time however, I found myself using the card more than I desired to. I would validate the expense with the points I’d get. Once you start paying interest of $ 5,000 or more the points never make up for the interest you pay month-to-month.

When it concerns business credit cards, get as low a rate as possible and stay away from rewards credit cards unless you are 100 % sure you can pay off the balance in full each month.

Another miscalculation I made when I was starting my business was transferring balances from a higher rate charge card to my new small business credit card. This actually cost me money ultimately. Here’s how:

When you transfer a balance not only is there a service charge to accomplish it, that balance that you now have at 0 % or 1.9 % or whatever the promotional rate offer was, now changes into the balance that all forthcoming payments apply to first.

So, let’s say you have a business charge card with an APR of 9 %, that has a $5,000 balance. And you have another card that you owe $3,000 on that has a 15 % annual lending rate. You transfer the $3,000 balance to your business card at the time a “0 % for a year” promotion to save interest.

What the banks don’t go out of their way to explain (read small print) is that now every payment you make to your business credit card gets applied to that portion of your balance that is at the 0 % rate. And now that your balance is $8,000 you can’t afford to pay the entire balance off each month.

That $5,000 you owe them keeps tallying interest at the regular 9 % APR. So actually you’re now paying down a 0 % balance month after month while the bulk of your balance is not being paid down whatsoever. Do the numbers and you’ll find that consequently you did not save much if any money, especially after you pay the “processing fee” for transferring the balance. The best way to save when doing a balance transfer is to transfer a balance from a high interest card to a credit card that has no balance on it. That way all you pay out is the fee for transferring the balance. Backing a business with small business credit cards is simple and can provide enough capital for many types of business. Just make sure you shop for a good low interest cards, weigh the points and rewards options carefully and above all, be careful when doing balance transfers!