Why Using Credit Cards to Finance Your Small Business is Risky for You

The first and foremost reason why using credit cards for start up business financing or business debt financing is risky, is because these credit cards are almost always personal lines of credit. Even though financial institutions will market so-called "business credit cards" or a "business line of credit," they are almost always, in fact, personal lines of credit. You are personally liable for these lines of credit, and not your business. Not only is your personal credit rating at risk for using these lines of credit, but since the issuer requires a personal guarantee, your own assets and money are at risk, as well.

Although it is possible to finance your business with personal lines of credit, it is a risky and difficult thing to do properly. Without the right planning, you could find your personal credit, your financial situation and your business in jeopardy, and find yourself in a much worse position than before your small business began. Not only is it a substantial risk to yourself, but it may be a risk to any shareholders or business partners you may have. An article at Entrepreneur.com states that "most banks require shareholders with significant ownership in corporations to guarantee business lines of credit - typically owners with more than 25-percent stake that are required to sign guarantee forms when credit lines are more than $5,000."

This means that they can be sued, individually or jointly, by the bank, should you end up owing money to your credit card issuer. This can make it incredibly difficult to obtain a business line of credit, if only because you will have to convince any shareholders or partners you have that the payoff will be worth the risk they will be taking on. For help with using business credit cards for start up business financing or business debt financing, please contact us.