Talus Pay: How you can finance your business using your credit card

When you think about all the conventional or standard ways to start a business, using your credit card would certainly fall under the latter category. Most would still opine that it’s never a good idea to start a business through debt, but the times are different today. There are instances when using your credit card can be advantageous as well.

Surprisingly, credit cards constitute one of the most common ways to finance a business. Approval for bank loans can often be quite tricky, especially for small business owners, or those that are first-time entrepreneurs for home-based businesses. As their options are limited, hence the need for them to avail the alternative of credit cards.
If you’re interested in learning more, this article is just right for you. Here you’ll learn about how you can finance your business using your credit card.

1. Understand why a credit card can help

Before you even get started with credit card financing through Talus Pay, you have to develop a deep understanding in your mind as to why using a credit card can help. This is particularly important, especially if you don’t have much knowledge about credit cards yet. Remember that in this case, you’re no longer just going to use it for yourself. In fact, it’s for a much bigger purpose: your business.

That said, here are two of the most compelling reasons why a credit card can help:

• A credit card, when used to finance a business, can help build your credit rating. This advantage works very well for start-up companies that still have a lot to prove in terms of their credit standing with banks. Down the line, it’s going to be easier for you to prove to banks and other lending institutions that you’re eligible for a loan.
• A credit card gives you access to revolving credit. Because you’ve got credit with you at all times in your wallet, you’ve got access to cash that can easily cover gaps when your business desperately needs it. It’s also enough to give you money to cover short-term business expenses on a temporary basis.

2. Negotiate for lower interest rates

With traditional business loans, it may be a little bit trickier for you to negotiate lower interest rates. With credit cards, this can be quite possible. This is even more so when you’ve already proven well enough from your previous track record that you’re responsible for making payments on time.
Here are other tips for negotiating lower rates for your business:

• Have at least three personal credit cards for your business, but keep close track of the flow of cash and expenses with each card.
• Find credit card companies that offer fixed rates once you’ve successfully negotiated your interest rates.
• Always make payments on time.

3. Appreciate the risks of using a card

As is the case with other uses of the credit card, for you to effectively use your credit card for business, you also have to understand the risks that inherently come along with it. Otherwise, you may end up misusing your card. Remember that in this case, you can’t afford to take major risks as your business is going to be at stake.

Here are some of the risks you have to study and weigh out well, for effective credit card use in business:

• It can damage your credit score if you don’t make payments on time. So always make payments on time, just as you would if you had financed your business with cash.
• Note the possible interest rates that may apply with every transaction, so it’s imperative to always proceed with caution.

4. Choose the cards with 0% interest offers

Most credit cards are going to offer you 0% interest rates for the first year. Choose these cards if you’re going to use a card to finance your business. With a 0% interest rate, you’re able to fund upcoming purchases throughout the year and pay for expenses without the need for worrying about being charged interest. For businesses that are still starting up, you’d know that the first year is often crucial. You’re still trying to build your name, so it may not always be the case that the income level would be good.

With a 0% interest card, you can help fund the growth of your business without worrying about the fees.

5. Spend within your means

Overspending is one of the inherent dangers of credit cards, whether you’re using it in a personal capacity or for your business. When there’s a need to be cautious with using credit cards for personal purposes, this need increases all the more when you’re going to use your card for business. Spend within your means, else you’re going to have trouble keeping track of your business expenses. For businesses that are still starting up, you don’t want to have to worry about a huge debt on top of all the other concerns associated with starting a business.

Always be very prudent about what you pay for with your card. If the bill for your business can still be paid in cash, then do so. Don’t make the mistake of using your card beyond what your business can handle financially at the moment.

6. Use the details wisely for accounting

Another advantage of using a credit card is that the transactions are automatically billed every period. This means that when the bill comes out, the details of each transaction are automatically recorded. Hence, in using your credit card for business, only you and your accountant should have access to the transaction records. That way, you can also double-check to see that the credit card purchases were indeed used only for business.

Use the credit card transaction details wisely for your accounting purposes. If there’s any transaction charged that seems like a red flag to you, discuss this with your team first before you verify it in your business books and accounts.

7. Use your card regularly

Yes, it was also mentioned earlier that while using your card to finance your business, you have to be very careful with the charges. Pay in cash whenever possible. This isn’t to say that you shouldn’t use your card AT ALL. Because you’ve opted to use a credit card for business financing, you now have to use it regularly. Else, your card might be closed for inactivity, and this, in turn, can hurt your credit score.

The prudent way to go about this is to pay for all your transactions through the credit card. But, be sure that when the bill becomes due, you can afford to pay for this bill immediately in full. That way, you’re also making it easier for your accountant to compute the inflow and outflow of your cash for every business cycle.

8. Take advantage of the rewards

When you’re using your card to pay for many of your business utilities, you’re also collecting rewards. To be more practical about your credit card usage, take advantage of these rewards whenever there’s something for you to claim. Don’t just use it for something that you can gain for yourself, but choose the more practical option of taking advantage of these rewards for business purposes. When you use your rewards for your business, you’re actually giving your business a few days off to relax or spend lower on day-to-day operational expenses.

For example, your rewards points may enable you to obtain vouchers at a supermarket. Use these vouchers to shop for ingredients if you have a restaurant business. That way, you’re able to save on this expense in a certain period. These savings can then go towards your capital so that you can have a faster return.

9. Always pay on time

Even when you’re using a 0% interest card, always make payments on time. Note that it’s not only your ability to pay that determines your credit score. But a lot of this also has to do with the frequency and timing of your payments. When you always pay on time, this puts you on a better credit standing with banks. You’re able to show to banks that you’re a responsible card owner, and you can pay.

Showing this to banks comes in handy when you wish to expand your business in the future. Naturally, when you expand, you can no longer be dependent on credit cards. You need to take on a higher loan or some other source of financing. Prove your worthiness for this early on by being a responsible credit card owner.

10. Deduct amounts paid on interest from your taxes

As much as possible, always stay away from interest. But when this isn’t possible, then be prudent enough to keep track of these interest charges and pay them on time. As you use the credit card for business, also remember to deduct amounts that your company paid on credit card interest charges from your taxes. That way, you’re not charging yourself or your business double. This is a point that your accountant should also know.

Take note of the following rules when deducting amounts paid on interest from your taxes:

• The purchases should all be business-related
• The interest should be deducted in the same business year and taxation period
• You can also deduct the annual fees and late charges

Conclusion

For small businesses in particular, many owners are starting their companies by financing through credit cards. Generally, the owners of businesses that are still in the start-up process stage don’t have business credit. Hence, they need to look for other solutions. With responsible use of credit cards, now you finally have a means of financing your business. To be sure that you’re headed in the right direction, however, you must keep these tips in mind. Else, you don’t want to fall in the massive trap of debt with nothing to show for it.

25/08/2020