Credit Card Funding for Startups: Does It Work?

By Susan Guillory · May 22, 2024 · 6 minute read

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Credit Card Funding for Startups: Does It Work?

When you’re looking for small business loans and financing solutions, maybe to get through a slow period or perhaps to grow your company, it’s a good idea to explore all your options.

In addition to loans, lines of credit, and other financial tools, credit card funding is an option to consider. It’s easy to access, it can be used in many situations, and it can have some pretty great perks, but there are downsides, too, as well as alternatives. Credit card funding for startups can work. But it pays to know all the facts before you make a decision.

What Does Credit Card Financing Mean?

Credit card financing simply refers to using credit cards to make purchases for your business.

Unlike term loans, such as a small business loan, where you get a fixed amount of cash all at once and then pay it back over a fixed period of time, credit card funding works more like a line of credit. You have access to a certain amount of credit and can make a purchase, pay it back, and then have access to the full line of credit again.

Credit cards do tend to have high interest rates. But if you pay off your purchases before the close of a billing period, you won’t rack up any interest. Or, if you can find a credit card that has a 0% introductory interest rate and pay off your balance before the introductory period ends, it can serve as a kind of interest-free small business loan.

Should a Business Owner Consider Using a Personal Credit Card to Fund Their Business?

You probably have a personal credit card, and you might have thought about using the same credit card funding for your business. But if you’re a small business owner, it’s a smart idea to have a separate credit card for business use.

When you file taxes, you likely deduct business-related expenses. Having a separate card makes your accounting and tax filing easier because it helps you avoid mingling your personal and business expenses.

Cards designed for businesses may also offer benefits intended to be useful to them, like travel and lodging perks and cash back for purchase at retailers like office supply stores. Of course, what’s useful to your business depends on its unique needs, and business cards don’t always have the same protections as consumer cards, so it’s important to read and understand the terms of any card you apply for.

If you’re interested in getting small business funding with a credit card but not sure where to start, consider these top small business credit cards for your company.

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Pros and Cons of Credit Card Funding

Credit card funding does offer many benefits, but it’s not without its drawbacks. It’s a good idea to weigh them both carefully.

Pros Cons
It may offer useful rewards Interest can get expensive if you don’t always pay off your balance
Your available credit can be replenished It may charge various fees, including an annual fee and late fees
May be able to get a promotional rate May not provide enough capital

Pros of Credit Card Business Funding

Credit card funding offers many benefits if you’re looking for a versatile financing option.

Potential for Rewards

There are many business credit cards that come with rewards programs. For each purchase you make, you can earn points that can be redeemed for travel, gift cards, and/or cash back. This may help offset any fees charged.

Credit Replenishment

Loans for business typically involve a lump sum you receive once in its entirety. But credit cards can be used indefinitely, as long as you pay your balance. Once you pay your balance, you have access to the full credit line again.

May Be More Affordable Than Some Financing

Though credit cards often come with hefty interest rates, they may be a cheaper form of financing than options like merchant cash advances and alternative loans, particularly if you can get a promotional low or 0% interest rate. If you don’t qualify for low-interest bank or SBA loans, business credit cards may be your next best solution.

Cons of Credit Card Business Funding

With any form of financing there are also downsides. Here are a few factors to be aware of.

Can Be Expensive if You Don’t Pay Off Your Balance

Business credit card annual percentage rates (APRs) currently average 22.15%. Those rates are no joke. Keeping a balance on your credit card means you’ll pay more and more for a purchase over time. Paying off your balance in full as soon as you can may keep your financing costs down.

May Have Other Fees

In addition to interest rates, business credit cards often carry other fees, too. You may pay a fee for a balance transfer. If you’re using it to fund your bank account, you may be hit with bank card funding fees. Paying late may result in fees. And there may be annual fees. Read the fine print to understand all potential fees you might be charged.

May Not Provide Enough Capital

Credit cards offer access to a certain amount of credit, but you may need significantly more to start or grow your business. Your card probably won’t cover larger expenses like purchasing real estate or expensive equipment. If your needs exceed your credit limit, you may have to take out an additional loan or business line of credit.

Other Startup Funding Options

Business credit card financing is far from your only option if you’re looking for capital for your business. No matter what your credit score, there’s likely to be a small business financing solution for you.

Small Business Loans

Term loans give you a lump sum of cash upfront that you repay (plus interest) in regular, often monthly, installments over the term of the loan. While banks will typically only lend to businesses with strong credit and at least two years of business history, online lenders generally have more flexible qualification criteria and are also usually faster to fund.

Business Lines of Credit

You already know how a line of credit works, since that’s essentially what a credit card is. However, an actual business line of credit gets you access to a set amount of cash that you can withdraw as needed. You only pay interest on the amount you draw. Once you repay the funds, the full credit limit is available again.

Invoice Financing

If you don’t qualify for other types of financing but have receivables, you might consider invoice financing. With this type of funding, lenders advance a percentage of your unpaid invoice amount — potentially as much as 90%. When your customer pays the invoice, you receive the remaining percentage, minus the company’s fees.

Equipment Financing

If you’re looking to purchase equipment but don’t have good business credit, equipment financing may be worth looking into. The equipment you’re purchasing, whether that’s a computer, a company vehicle, or a threshing machine, serves as your collateral, which means you may get a lower interest rate than with other types of financing.

Merchant Cash Advances

If your business has credit or debit card sales, needs cash quickly, and has poor credit, you might consider a merchant cash advance (MCA). With an MCA, a company gives you an upfront sum of cash that you repay using a percentage of your debit and credit card sales, plus a fee. This tends to be one of the most expensive forms of small business financing.

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The Takeaway

If you need a tool to help you purchase items for your small business, credit card funding has a lot to offer. It’s versatile, may offer rewards, and, depending on your credit, may be more affordable than other funding options.

If you want to explore business financing, small business loans could be a good option.

If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.

With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.

Photo credit: iStock/Dmytro Skrypnykov
SoFi's marketplace is owned and operated by SoFi Lending Corp. See SoFi Lending Corp. licensing information below. Advertising Disclosures: SoFi receives compensation in the event you obtain a loan through SoFi’s marketplace. This affects whether a product or service is featured on this site and could affect the order of presentation. SoFi does not include all products and services in the market. All rates, terms, and conditions vary by provider.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.


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