Bank Loans vs Business Credit Cards
How Do Business Owners Get Funding for New Businesses?
- Business Credit Cards
- Business Loans through financial institutions
- Grants
- Community Development programs from their city
- Personal credit cards
- Credit Unions
- Friends and family
Why are Business Owners Turning to Credit Cards vs Bank Loans?
Business owners whose business profits exceed five million dollars were sure that their bank would loan them the necessary funds. Rarely do small businesses bring in this amount of revenue, so generally over 50 per cent of the applications for a business loan are turned down. When these bank loans are turned down the business owner generally turned to their credit card for the funds needed, but generally less than 50 per cent of the business owners.
Using a business credit card to get a business up and running means that the bank is going to look into the personal the person’s credit history before they consider issuing a business credit card. Some financial institutions will look at the business and personal accounts of business owners. The reason for this is that if a person has a strong credit history this will give their new business a boost. Many financial institutions will require the business owner to give them some sort of guarantee, personally in case the business does not thrive. The business credit card becomes the owner’s responsibility to pay should the business not make it. This is the case of most business credit cards.
Downfalls of Business Using Credit Cards
The downfall of a business credit card is that if the business closes its doors and goes through bankruptcy, the credit card company can go after the owner’s personal assets. This does not hold true for a bank loan for a business. Business loans through banks cannot go after the owner’s personal assets.
While some banking institutions say that it is far better to not even have a business credit card, other institutions are saying that by having a business credit card is the beginning steps to separate business from personal credit. Some business owners feel that it may be more suited to them to use a personal credit card.
What the Economy Has Done to Businesses
During the early part of the downfall of our economy business owners found that to obtain bank loans were very hard. Banks needed to make sure that the monies loaned could be repaid. Many business owners would seek business loans only to be turned down because they had too much debt and not enough income and banks feel that this is a high credit risk. Businesses avoided unnecessary expenses and they were trying to reduce their overall debt, and keep revenue coming into the business. They were paying their bills, but at a much slower rate. Many small business owners do not feel that closing their doors and declaring bankruptcy is any kind of an option for them.
One good indication that a business is in trouble is that they are taking longer to pay bills, however some business are not in trouble at all they are holding their own by keeping outgoing funds longer. Many businesses, like homeowners are stretching the time needed to pay a bill, saving their funds until the last minute. Business no longer has the excess cash they once experienced.
Author’s Bio
Dave Thompson writes for Businesscreditcards.com and is open to writing on a freelance basis about anything related to his industry.