Funding a small business with credit cards

Be cautious and know whether you are personally responsible

Your Business Credit columnist Elaine Pofeldt
Elaine Pofeldt is a journalist whose articles on entrepreneurship and careers have appeared in Fortune, Working Mother, Money and many other publications. She is a former senior editor at Fortune Small Business magazine and an entrepreneur herself, as co-founder of, a website for independent professionals. She writes "Your Business Credit," a weekly column about small business and credit, for

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Question Dear Your Business Credit,
I can’t get a loan. Is a credit card a good idea to cover expenses? Should I limit it to emergencies or can I use it for investments like updating the website or remodeling my retail store? – John

Answer Dear John,
These are excellent questions. Many small-business owners can’t get a business loan until they have built a track record in business for a while. That can leave them short of cash they need to invest in the business – and sometimes, credit cards are the only option. 

Should you use your credit card to finance nonemergency purchases that will help your business grow? That depends.

Generally, credit cards are useful for extending your cash flow. When you pay by credit card, it gives you a little extra time to come up with the money to pay your bills. That can come in handy during slow periods or when you need to invest in inventory upfront. Credit cards can also be a convenience when you are traveling or entertaining clients and want to be able to track your purchases.

Here’s the rub: Even if there is a very good reason to make an investment in your business, you will generally be responsible for paying any debts you rack up, regardless of whether the business succeeds or fails.

Many owners mistakenly believe that when they open a small-business credit card, they are not personally responsible. However, in most cases, they have had to sign a personal guarantee for the card, whether they recall doing so or not. In some cases, they may have agreed to “joint and several liability,” in which they share personal responsibility with the business entity for the debts, but in the end, the credit card company has the right to go after them if the bills are not paid.

If you are confident that you can pay back what you are charging on your credit card for your business out of funds you will have in the very near future and the purchases are important for the growth of your business, then I would say go ahead.

If, for instance, you are spending $2,000 for inventory that has historically sold well in your business, then you probably will not get in over your head. But it is important to be realistic. I would not borrow $5,000 to stock your store with a product you’ve never sold before. Instead, introduce it on a more limited basis and order more later if it is selling well.

If discretionary purchases can wait a little while longer until you can pay for them out of cash flow, I’d suggest that option. Financing big purchases, such as a $10,000 remodeling job, out of cash on hand is often a smart decision, because it forces you to spend your money very carefully. It’s easy to get swept into spending more than you planned when you can charge the purchase.

Many small-business owners are optimists, and they have a “Go big or go home” attitude when it comes to their business. That mindset can be a powerful asset, but it’s important to temper it with realism.

Given the uncertain political climate at the moment, every business owner should be prepared for the possibility that the economy could change in unexpected ways. Keeping business debt to a minimum is one way to ensure that you are prepared for whatever is ahead.

See related: Who is responsible for business card debt?, What’s the best business card?

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Updated: 02-19-2019