Credit card financing is a consistently popular way for small business owners to finance startup and expansion. In fact, four out of five small business owners today use credit cards to start or grow their businesses.
This series is ripped from the pages of our Free Whitepaper on small business financing and unsecured business lines of credit: The Truth about Credit Card Financing, Myths and Realities about The #1 Source of Small Business Financing.
A January 2012 study by the National Federation of Independent Business found that 79% of small business owners use credit cards as a source of financing. Meredith Whitney Advisory Group cited in The Wall Street Journal, 82% of small business owners say credit cards are a vital part of their overall financing strategy. A 2010 Keybridge Research study, Quantifying the Impact of Credit Cards on Small Business Growth & U.S. Job Creation, Keybridge found that each $5,613 increase in credit card use per month leads to one net new job. Here are three of the most common myths about credit card financing:
Myth No.1: Small businesses shouldn’t use credit card financing
Credit card financing is typically portrayed in the media as a risky, last-ditch option for small businesses. However, credit card financing is the most common method of financing. When properly used, it can be very effective in helping small business owners grow their revenues.
Myth No.2: Other means of financing, such as Small Business Administration (SBA) loans, are more desirable
Many advisors to small business owners, such as the SBA, SBDC and SCORE, place a great emphasis on SBA loans. While SBA loans can indeed be a great solution for some small business owners, they are not suited for every business. Each year, only about 0.002% of the small business owners in the U.S.–about 50,000 entrepreneurs—get approved for SBA loans. By comparison, approximately 80% of small business owners—between 20 million and 24 million entrepreneurs–use credit card financing in an average year.
Myth No.3: If you must use credit card financing, you should use your personal credit card so that you can enjoy the protections of the CARD Act.
Many so-called “experts” are urging small business owners to use personal credit cards for business purposes so that they can benefit from the protection offered in the CARD Act. The problem is that the law protects the few at the expense of the many. Look at what happens to your credit profile when you use personal credit cards. It lowers your FICO scores and it increases your utilization of credit. Bad move my, friend.
This concludes Part 1 of the series, Stay tuned for Part 2 to better understand how to properly obtain a Small Business Loan or Unsecured Business Lines of Credit. If you would like to read the The Truth about Credit Card Financing click here.
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