Funding Your Startup? Here’s What No One Tells You!
The time has finally come. You have a brilliant idea and it’s unbelievable that no one has thought of it, or made it a reality yet. You need to act fast now that you smell the potential money making power but the problem is you need money. The fastest access to money is through credit cards.
Now credit cards can be a great way to fund your startup quickly but there are many things you need to know. The pros and cons of using your credit card will be covered in this article and is for budding entrepreneurs who need to know what others won’t tell you. Read on for more information.
Incorporation and Personal Guarantee/tor
Since credit cards are essentially loans, the biggest con that comes with them are the same as loans themselves. To actually fund your startup business with your credit cards comes with some risks.
Many entrepreneurs have been registering their companies under the banner of sole proprietorship (one person owns it all) and to anyone offering loans, you aren’t going to look that appealing to lend to. There is a big chance they will say no more often than yes.
The best way to fix this is to make your business ‘incorporated’ (discussed further below) where you are the only one who can guarantor your business debts. If you use credit cards before this time, any loans you take out will be under a personal guarantee, and all of your possessions will be at risk if you can’t pay it back.
Partnerships work essentially in the same way but with one major difference. Each partner is liable for 100% of all debts incurred by the business and if one partner can’t pay up, then you are going to cop the bill. Choosing not only your debts but your partners in these situations is a process that should never be rushed.
While incorporating your business may protect you from certain liability issues when it comes to your personal assets, the problem is that this is not the whole case. Many entrepreneurs have gone and incorporated their businesses thinking they will be completely safe from all debts affecting their private property. At the beginning of the incorporation process, you are still entirely at risk of this.
If you are the only person in your company, or have just a few employees, any issues or lawsuits that arise will be directly your problem. You could also personally be sued but with incorporation, your credit card debts would not be your responsibility, and you are free to cover the areas where your possessions are at risk.
Business Credit Card Benefits
While the above does put your company and your personal life at risk, utilizing credit cards can be beneficial to your business for a number of reasons. Many people don’t have to be entrepreneurs to figure out how to use credit cards, apply for them, and how they work, which is all a plus. Securing a credit card is a simple process, with many times not even needing to speak to anyone. Not only that, but the reply is incredibly fast so you can secure some capital for that amazing idea before someone else does!
There are many credit cards that are created to suit businesses and start-ups alike. There are also features that assist businesses to expand and receive a myriad of rewards. Many internet payments are easier to use with credit card and clear quicker. If the owner can manage their credit cards effectively and pay off every bill and a bit more at a time, their credit scores will begin to improve and enable them to score higher loans. Many businesses will need this down the track.
Using one credit card for a number of different accounts within your business assists bookkeeping efforts, minimizing the amount of statements required to be checked or located/filed.
Even though there are some horrible legends and stories out there about using credit cards for businesses, there are a number of great reasons to use them (as explained above). Many entrepreneurs are responsible people who pay their bills on time and never get dragged through the debt sacrifice. They also get to take advantage of all the rewards and features provided, which makes them the best option for many start-up businesses.
3 Steps to Success
If you already have secured your credit card and are looking to get started straight away, here are some things you need to be aware of before you start charging:
Make A Plan
Make sure you know EXACTLY how much you need, how much everything costs, what you need, how you can pay it back , how fast you can pay it back, and more. Be as detailed as possible.
Be Stingy (At Least A Bit)
Don’t spend money you don’t have to on your credit card. It may seem like it’s free money but you’ll definitely be paying for it later (metaphorically and literally). Try to cut costs wherever and whenever you when you first start.
Look For Other Options
When you start to expand and continue to grow, your business will be in need of some serious capital, with credit cards no longer able to help. To keep your business moving forward, you’ll need to approach a number of different financial institutions.