Running a small business could be challenging, especially if you don’t have access to capital funding from big venture capital (VC) firms or private investors. In our interaction with small business owners, most cited positive cash flows through a constant influx of working capital as their topmost priority.
Those businesses who do not have access to VC funding have relied on either small business loans or personal credit cards as their primary source to support operational cash flow requirements. Though legally acceptable, personal credit cards suffer from a few drawbacks.
First, they create problems when it comes to accounting and bookkeeping processes. Second, they are not designed to facilitate business transactions and hence suffer from rigid requirements when it comes to spending limits and other incentives that are otherwise available for business credit cards.
Business credit cards offer some distinct advantage from a process perspective. The approval process is shorter, documentation requirements are not as rigid as loans, and the terms are more business friendly.
Capital via credit cards
Business credit cards offer a strong alternative to personal credit cards and also provide the much needed flexibility for individual business needs. Low interest rates, higher spending limits, travel points, discounts for business purchases — these are just some of the perks offered by business credit cards.
Despite the availability of a larger spending limit, avoid relying exclusively on credit card capital as a source for running your business. The APR could severely erode your ROI and your margins in the long run. A good strategy would be balance personal funds, receivables, and capital via credit cards.
Here are some common types of business credit cards that could be used either as a source of capital or a transactional tool:
Cashback credit cards
Business credit cards that offer a certain percentage cash back can be a solid tool if you make frequent purchases and are very regular with your payments. If you carry a balance, however, it may not be a good idea to opt for a cashback credit card as the APR could cost you much more than your cashback earnings.
Travel rewards credit cards
If your business requires you travel frequently, consider signing up for a credit card that offers travel rewards either in the form of airline miles or points that you can exchange in lieu of airline tickets.
Higher credit limit
If your lender offers you a higher limit, you may just solve your emergency requirements for business capital via credit cards alone. Capital credit cards.
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