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Should You Finance Your Ecommerce Business With a Credit Card?

Platforms like Shopify, wooCommerce and more make starting an eCommerce business easy – but where should the starting capital come from? Our friends at Fundera have some suggestions – as shared in this guestpost below. 

So you’re ready to get your great idea for an ecommerce business off the ground. You know what products to sell, have a great website design in mind, and can’t wait to start taking and fulfilling orders. The only thing remaining is, well, finding the money to make it all happen. This is no small task, whether this is your first business or your fifth.

The unfortunate truth is that not every lender is going to have as much faith in your ecommerce business as you do. Lenders are notoriously picky about whom they lend to: Most small business loans go to established businesses that can prove they’re financially solid enough to pay back the debt they take on.

It’s much harder for new businesses to get funding through conventional channels, which means you’ve got to get creative with your funding strategy. This is where business credit cards come in.

A good business card—ideally one with a low introductory interest rate—can help you finance your ecommerce business when other lenders won’t. Granted, you’ll need to be careful with when and how you use your card, as well as which one you pick. Here’s what you need to know in order to finance your ecommerce business with a credit card successfully.

How to Use a Business Credit Card to Finance Your Ecommerce Business

You might not think that using a credit card to finance a business could be a good idea under most (if any) circumstances. After all, credit card debt is at an all-time high and rising steadily every year. Most business owners want to avoid debt like the plague, too, since too much debt can eat into your company’s budget quickly.

But depending on how and when you use your business credit card, there are some scenarios in which it makes sense to finance your business with plastic. The name of the game here is to use a credit card after you’ve exhausted your other options, or when your card’s interest rate is lower than that of any other kind of loan you might be able to get.

When You Should Use a Business Credit Card….

The primary thing to consider when using a business credit card to finance your ecommerce business is paying off your debt quickly. Leaving a balance on your card can lead to high interest rate payments, which means you’re paying more for your loan than you would through other avenues. Here are a few scenarios in which it might make sense to consider a credit card to fund your business, depending on your personal and company financials.

  • When You Qualify for an 0% Introductory APR Business Credit Card

(Editor: Fundera caters largely to a US-based audience. Local regulations, offerings and rates may differ.)

If your personal or business credit score is 660 or above, you may have a shot at getting a business credit card with a 0% introductory APR. These cards are great for small businesses—they can make small purchases more attainable, and can also function as a business line of credit. These cards usually provide you with 12 to 15 months at the introductory interest rate before the regular APR kicks in. You could get your ecommerce site off the ground by putting your purchases on the credit card, so long as you pay off your balance before the introductory period ends.

  • When You’re In a Financing Emergency

Starting a business isn’t easy—and it’s particularly hard on your wallet. There might be times in which you need to make a vital purchase, and can’t do so in cash. Or, alternatively, you may need to pull the trigger on a purchase and haven’t qualified (or yet been approved) for a loan. In these cases, it makes sense to use your credit card as your last resort option. You’ll likely pay more for your purchase due to interest, but this is a sacrifice you have to consider if you have a quick need for capital.

…and When You Shouldn’t

There’s a pretty narrow set of circumstances in which you should finance your business with a credit card. Namely, when you’ve got a great introductory offer, or when you’re out of other options. Otherwise, there are a slew of reasons why you should avoid using your credit card for anything but small purchases, or to conduct everyday business. Here are a few of the key reasons why you shouldn’t consider a credit card as your primary financing option.

  • If You Qualify for a Loan

This one’s fairly obvious: if you qualify for a loan, take it. Nearly every loan offers you a lower interest rate and better repayment terms than a credit card will. This even includes short-term loans, which often charge less interest than your card’s rate and can fund quickly.

  • If You Can Borrow from Friends and Family

Friends and business rarely mix well. But, if you’ve got a support network that’s willing to help give you seed money to start your business, you may want to take them up on the offer. Informal loans from friends and family can be much more advantageous than the best credit card. You’ll be able to work out repayment terms and interest without having to go through the formal lending process. This means that you won’t have to worry about your credit score, the amount of time you’ve been in business, or any of the other prerequisites that lenders want to see.

  • If You Can Afford to Make Purchases Later

When you start your business, you almost always want to start small. Avoid the temptation to make massive investments in the nascent stages of your company’s development. Starting small allows you to scale up over time, and to find out what works before investing massive sums of money. Only make essential purchases when you start out—this will help you right-size your expectations, help you get out of the red quicker, and can make you a more attractive borrower due to your longer business history. It’s better to wait and build a track record before you apply for a loan–starting small can  help you do this.

Alternatives to Financing Your eCommerce Business With a Credit Card

You may not be in a position to get a conventional business loan if you’re considering using a credit card to do the job. But if you haven’t exhausted all of your options, there may be a few to consider that you may not have thought of.

Invoice Financing

Invoice financing might work for you if your company is off the ground already, and you have incoming invoices from clients and vendors. This option is similar to a cash advance, since you supply your lender with outstanding invoices in exchange for money up front. Most invoice financing loans give you 85% of the total value of the invoices up front, and the remaining 15% once they’re paid. You’ll pay interest on the value of the invoices, as determined by the lender. This option is great if you need quick cash, and have due invoices that you can put up against the money you need.

Short-Term Loans

We touched upon short-term loans earlier, since they’re a good alternative to putting large business expenses on a credit card. Businesses usually have an easier time getting approved for short-term loans than they do for regular business loans, since the credit requirements are more relaxed and lenders don’t have as many requirements. You’ll get access to the money you need, albeit at a premium: short-term loans often come with high interest rates, and you’ll have to pay off your loan much quicker than you would with other financing options.

Should You Finance Your eCommerce Business With a Credit Card?

Business credit cards can be a suitable method for financing your ecommerce business, so long as you know when and how to use them. Be sure that you’ve ruled out every other option before you go down this route, or risk giving up money (and dinging your credit history) as a result.

Business lending is a big, wide world. A little bit of research and legwork goes a long way toward helping you build the business you’ve dreamed of.

Meredith Wood is the Editor-in-Chief at Fundera. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.

Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business.

Raúl Galera

Raúl is ReferralCandy's partner manager.