While it’s not often the most recommended way to finance a small business, financing your startup with personal credit cards is an option. There are a few benefits to financing a small business with personal credit cards:
- You don’t have to apply for new business credit cards.
- You may already have established credit and available limits to cover what you need.
- You won’t need to go through the process of applying for bank loans, grants, or other types of financing, especially if you have a risky startup idea that doesn’t appeal to those types of investors.
However, there is also much more risk involved for you as the business owner when you finance your small business startup with your personal credit. Here are some of the downsides of using personal credit cards for business financing:
- If the business fails (and the reality is that many do), your credit card debts will affect your personal credit and not just your business credit.
- Even if the business doesn’t fail, but if you have a slow period, your personal credit score would be directly (and negatively) impacted, which can affect your ability to get personal lines of credit in the future.
- Your personal credit score can be affected even if you are paying your minimums, because you’ll likely incur a large amount of personal debt when starting a business (something factored into the total credit score of an individual).
The effectiveness of using personal credit cards to finance a business depends heavily on the entrepreneur and the future success of the business. Not everything can be controlled with a startup, making this kind of financing particularly risky. Make your small business financing decisions carefully, and know how you’ll account for the slow times, and you’ll run less of a risk of severely damaging your personal credit through your new business. Always have realistic earnings expectations, and no matter what kind of financing you use, don’t take on more debt than the business will reasonably be able to handle.