When you are establishing an e-commerce startup, you will generally not be able to get any loans from conventional banks and credit unions since there is no record of accomplishment. Typically, in the early stages of the business, you will need to use your own savings and your credit cards. According to Forbes, credit cards represent one of the quickest ways of accessing funds for startups. However, funding your e-commerce business with credit cards can be quite tricky unless you are very careful. Some useful tips for using credit cards to power your business ahead successfully:
Consider Your Credit Card Expenses as Loans
For most entrepreneurs, using a credit card is an extremely attractive way of financing the business since only the minimum amount due has to be paid each month, which is generally far less than the monthly payment on loans. The zero percent APR introductory offers that are quite common to new subscribers also ease the repayment burden and tempt card users to let the outstanding dues mount. Treating the credit card as free money is possibly the worst mistake that e-commerce entrepreneurs could make because within no time, they will discover that the repayment amount has ballooned, especially when interest has been applied together with late payment fees.
Make the Best Use of Balance Transfer Offers
If you have let your credit card balances mount up and are finding the repayments every month very difficult to make, balance transfer offers can make your life far easier. Very often, card issuers offer balance transfer facilities at zero percent for as long as 12-18 month during which no interest will be charged on balances that have been transferred from other cards. Sometimes to sweeten the deal further, they do not even charge any fees. If you have a large amount outstanding on other cards, using a balance transfer offer on a new card can reduce your interest expense substantially and free your cash flow to boost your e-commerce business. If you are out of options and the interest burden is killing you, you can consider talking to private lenders like national debt relief for a debt consolidation loan.
Pick a Card without Annual Fees or Make Sure That You Can Afford the Fees
As you might guess, the advantages and features offered by the cards that charge fees are quite different from the free cards. When you are choosing a credit card, you should first find out what features and facilities you require and then see if there are any features that the premium cards are offering that may make the annual fees worth the while. Choosing a free card means a lot of saving every year compared to cards that charge very steep fees. On the other hand, many of the premium cards give you a wide range of facilities and freebies that owners of businesses can use to save a lot of money depending on the use. In case, you choose a premium card that charges fees, do make sure that you can afford to make the yearly subscription payment.
Have a Transparent Credit Card Usage Policy for Employees
Even though in its early stages, an e-commerce business may not have too many employees, it is still a wise decision to have a credit card usage policy in place in case the business credit card is going to be used by any employee or business partner. Even if you do not wish to get a card usage policy drafted by a lawyer, you should at least have a written document. It should specify the allocation of the business budget for paying off the card bill every month, the liability of all users to pay for card expenses made for the business, non-allowance of any personal expenses charged on the card and the course of action if the business cannot afford to make the payment. A policy may seem redundant when the business is small but it helps to avoid messy disputes later on.
Have Different Credit Cards for Different Expenses
While the best card for a startup is obviously one that offers a very long zero percent APR on both purchases and balance transfers, you may not always be eligible to get one. When you have no choice but to use normal credit cards to fund your e-commerce venture, you should study the features and take full advantage of them. For example, a card that offers higher cash backs may be ideal for buying supplies, while a card that offers better travel reward points is better used for booking travel expenses. Fuel and fleet cards are better suited to meet expenses on fuel and car rentals. It is a good policy to have a selection of credit cards with different reward features and leverage their advantages as best possible.
Maximize Your Credit Limit
It is quite common to find that your e-commerce business has an insatiable hunger for funds, especially if it is growing very fast. If your credit cards do not have large limits, you may find the growth of your business difficult to manage. The best way of getting access to more funds apart from getting new credit cards is to build up a very good track record of repayments on time. You will find that your card issuer automatically increases your card limit and if that does not happen even after six months or so, you can give them a call and make a request for a limit increase. If the card issuer is happy with you, it will only be glad to accommodate you. Not only does a higher limit give you more flexibility but also it ensures that the utilization ratio goes down and boosts your credit score.
When you are chasing funds, it can be very difficult to make a choice regarding which cards to use. While personal business cards may offer a longer zero percent APR period, a business card will typically offer a larger credit limit. By using a business card, you can protect your personal credit score and keep your personal expenses separate from your business expenses. Credit cards represent a very convenient way of funding your e-commerce business but you need to take care to use them responsibly.