Top Personal Finance Blogs
Tuesday December 10th 2019

Using Credit Cards to Finance Your Startup

Credit cards should never be considered your first choice for raising capital for your startup business. The risks in running your credit balances up are too high for a business that has not yet proven itself stable. That said, there are some situations that could benefit from the short term or carefully structured use of a credit card to cover certain costs. If you plan to use credit for business funding, track your purchases carefully and pay the cards down as soon as possible.

Recognize the Risk Up Front

A personal credit card can seem like a convenient way to cover many of the costs of starting your business. The trouble with using your own card for a brand new business is that you have no guarantee that your business will be able to pay the balance down within a reasonable amount of time. The safest way to gain capital for a startup is through a traditional small business loan through a bank you trust. The interest rates on credit cards can be as much as 10% higher than a standard loan’s interest rates, which means you will pay 10 times as much for your credit card loan over the long run.

Use Balance Transfers to Your Benefit

If you choose to carry a high balance on your credit card after purchasing items such as desks, office chairs, printers, computers, and other operating equipment, watch your balance and interest rates carefully. If you have more than one credit card, you might benefit from transferring the balance from one card to another. Many credit card companies offer special discounted rates for customers who transfer balances. The balance transfer could save you several months of high interest rates on your card’s balance.

Create a Plan for Paying off the Balance

Before you swipe the card for the business purchase, have a plan in place for paying the card off. You should be able to project your expected company earnings for the near future. Figure out how soon you can pay off the card’s balance in full based on your sales projections. Once you make the purchases, pay the minimum required payments on the card until you reach your expected payoff date. Always have a backup plan in case your company does not do as well as you expect it to do within the time frame you have selected.

Credit to Cover Cash Flow

One of the most powerful uses of a credit card for a business is as a stop gap cash flow resource. When you submit an invoice to a client, you never know how long it will actually take the client to pay you back. You can loan your company the amount of the invoice by using your credit card during the time between submitting the invoice and receiving payment. When the payment is received, you can use it to cover the charges you had to make with your card. The credit card can keep your company solvent without depending on the payment time frame of your client. Of course, this method relies on timely payments from your clients.

The bottom line is that using a credit card to finance your startup is a risky endeavor. Use your credit wisely and be careful to maintain full control lest the credit cards begin to inhibit your business growth.

Still No Unemployment Extension

Some depressing news came for those on unemployment. The extension that would have pushed unemployment benefits has been shot down. The extension would have lasted until February, which would have increased an already record-breaking term of unemployment extensions for the United States. At the moment state funded unemployment lasts for 26 weeks at which time federal unemployment takes over for another 73 weeks bringing the total length of unemployment benefits to 99 weeks. The previous record of 65 weeks, which took place during the recession in the middle 1970’s, was shattered months ago. Congress was looking to increase unemployment due to the economic times but could not come to a compromise.

Unemployment Extensions During the Recession

Over the past three years around $319 billon has been spent to cover unemployment benefits. The Republicans shot down a bill asking where the money was going to come from. The bill came close; getting 258 of the 275 votes needed to pass. Roughly four million people are expected to be cut off from unemployment before the end of the year, which could make the holidays a very trying times for families across the country.

Emergency Spending May Still Come Through

This is bad news considering unemployment continues to rise. So many people losing unemployment at once is cause for concern for the overall economy’s health as well. The economy is expected to lose close to eighty billion dollars because of lawmakers’ failure to extend unemployment before the November 30 deadline. Many of the people receiving unemployment spend the money as soon as they get it in order to covers bills and much needed supplies, such as food. This is an immediate injection made each month into the U.S. economy. This could cause a crippling blow unless Democrats can win current arguments that an unemployment benefits extension would fall under emergency spending. This would mean that they do not need to offset the spending with savings elsewhere.

A Question of Motivation

The current unemployment rate is 9.6%. About 8.5 million people that belong to that 9.6% are currently receiving unemployment benefits. Many of those opposed to the extension believe extending unemployment only assists in nurturing a lazy attitude in people that are receiving unemployment benefits. The theory is that giving them more time to find a job will only make said beneficiaries less prone to actually search for one. However there is much skepticism facing this viewpoint due to the record breaking unemployment rates and extreme competition in the job market.

Democratic lawmakers are scrambling to pass a bill before Republicans take over the House in January. They fear the chances of passing an extension with the majority of the House Republican will be impossible. The original bill was meant to increase unemployment benefits for another year, but was shortened to three months in order to make the bill easier to pass. Unfortunately shortening the bill did not have the desired effect. The struggling economy is nothing new. The federal government has been arguing over how to fix the economy for a few years now and it is obvious that the economy is not going to be fixed for a while.

Mortgage Basics: Terms You Should Understand

When you apply for your first mortgage, you’ll hear many new terms that can be confusing. Don’t assume you understand what mortgage terms mean. Take the time to educate yourself so you know what  you’re getting into. Before you ever see the mortgage contract, you’ll be discussing certain terms with the lender.