How To Fund Your Small Business By Using Credit Card

Know the potential of using credit cards to fund your small business. Learn about the benefits and drawbacks, as well as tips and strategies for making the most of credit card financing!

28 Jan,2023 11:20 IST 3277 Views
How To Fund Your Small Business By Using Credit Card

Getting a new business up and running and also scaling it requires resources. This is both in terms of financial resources, or capital, and human resources, or people.

There are essentially two ways one can finance a business: equity and debt. Even if one has own resources to pump into the business as equity, financial prudence says one should have a mix of debt too to partially finance the total requirement.

However, at times this second option is not that clearly available, especially if one has a fairly new enterprise. On such occasions in particular, as also at times when the business is scaling up, one also has recourse to another form of debt as against a small business loan to fall back upon—one can use a credit card for the purpose.

Advantages Of Using A Credit Card

The biggest advantage of using a credit card for a small business expense is that it comes without any need for a loan application and approval. In the case of a business loan, the lender would look at various factors such as a high credit score and other aspects of the business. Moreover, they would insist on a minimum vintage, or age of the enterprise, before approving a loan application.

These are not limiting factors while using a credit card to buy products and services for a small business. What’s more, with an interest-free repayment period of up to 45-55 days, an entrepreneur gets an option to get a credit without any fee for the short term.

In addition, there are several other advantages that come along with the credit card such as reward points and other fee waivers for things like fuel reimbursements and so on.

For making online purchases, too, there are promotional offers while using a credit card and the enterprise can benefit from discounts from those.

The credit card usage also helps build a credit history for the business. This can come in handy in the future for business credit ranking or score.

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Disadvantages Of Using A Credit Card

There are some disadvantages of using a credit card, too. Credit cards come with a much high interest rate compared with business loans. This comes into play when one rolls over the credit beyond the interest-free period. This is often two to three times the interest rate charged by lenders for a business loan.

Secondly, while one can pay for business expenses with a credit card, if one chooses to pay salary to a few employees in cash by using the credit card, one would incur even more additional fee or a higher interest rate.

Types Of Credit Card

An entrepreneur has the option of using different types of credit card for business expenses. This can be a personal credit card as also a business credit card.

It is advisable that one uses a business credit card for meeting the needs of the enterprise as against a personal credit card. For starters, a business credit card can have a much higher spending limit. It can even be almost equal to what one would need via an unsecured business loan.

A business credit card also helps maintain financial discipline by separating book-keeping for personal and business expenses.

On the flip side, the business credit card tends to have higher fees and charges associated with them compared to a personal credit card. This becomes especially important if the firm does not pay back the entire amount within the interest-free period. Moreover, business credit cards may not come with purchase protection usually attached with personal credit cards.


Setting up a business and running it smoothly requires access to finance. Even if one has the resources to bring in as equity it is advisable that one looks at other sources. The most common route that is taken by entrepreneurs is to opt for a business loan. However, it involves applying for it and then getting a green signal to avail it. But business owners also have the option to use a credit card to meet certain business expenses.

One can use both a personal or business credit card for the same but it is advisable to use the latter for financial discipline by separating personal and business expenses. The business credit card, if used efficiently, can not only help finance the small enterprise but also offers up to 55 days of interest-free credit period, besides rewards and cashbacks.

Business owners can still opt for an unsecured loan for the enterprise from reputed lenders such as IIFL Finance. The company, one of India’s top NBFCs, follows a quick approval process for a business loan. It also has minimal eligibility requirements and a business vintage of just six months, unlike some other lenders that require around two years operations for the business to be eligible for a loan. For bigger requirements, IIFL Finance also offers secured loans of up to Rs 10 crore for a tenure of as long as 10 years.

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Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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