Over one-third of small businesses have dipped into their personal funds to stay afloat during the COVID-19 pandemic, according to a new CreditCards.com report. If your business is struggling, here are some solutions that can help you bridge the gap.
Our small business poll shows 24% who say they or the owners used a personal credit card and 21% who say they or the owners tapped a personal savings account since March (10% did both).
In addition, 30% of small businesses opened Paycheck Protection Program loans from the Small Business Administration, 24% accessed cash from a business savings account, 20% used a business credit card for financing and 9% took out another type of loan. That means 70% of small businesses depended on at least one of the aforementioned funding sources over the past five months.
Will it be enough?
Most small business decision makers (53%) say they will require an increase in sales and/or some manner of assistance to remain in business through the end of the year. Examples include increased sales (32%), government assistance (19%), a loan (13%) and something else (8%).
To meet their growth targets, even more small business decision makers (64%) say they’ll need at least one of those factors. In this case, 44% are banking on increased sales, 15% are looking for more government assistance, 10% are hoping for a loan and 9% said something else.
It’s such a tough time for small businesses. It’s commendable how far these dedicated business owners are willing to go in search of their dreams. I worry, however, about the debt they’re taking on, and how they’re potentially putting their personal finances at risk. Are some throwing good money after bad? It’s an individual decision, and only time will tell. Many are already in deep.
Most small business credit cards require a personal guarantee, so from a liability standpoint, there really isn’t much difference between putting these expenses on a personal credit card or a small business credit card. Consumer credit cards actually have better cardholder protections, although business credit cards can be useful for maximizing certain rewards categories and separating accounts.
0% credit card offers could help
One potential solution to bridge the gap is a 0% balance transfer credit card. It’s likely a lot harder to qualify now than it was, say, six months ago, but if you can get approved for one of these 0% offers, it could provide a ton of breathing room.
The U.S. Bank Business Platinum Card* has a 20-billing-cycle 0% intro balance transfer offer (9.99% to 17.99% variable APR after that) and the U.S. Bank Business Cash Rewards World Elite™ Mastercard®* has a 15-billing-cycle 0% intro offer (then 11.99% to 22.99% variable APR). Note that both charge an upfront fee of 3% or $5, whichever is higher.
Another possibility is to open a new credit card with a 0% introductory APR on new purchases. Issuers are still very selective, and you’ll want to be careful not to rack up an insurmountable level of debt. Small business examples include the HSBC Mastercard Business card* (0% on new purchases for the first 12 months, then an APR of the prime rate plus 5.74%, which currently means 8.99%) and the American Express Blue Business Cash™ Card (0% intro APR on new purchases for the first 12 months after opening the account, then 13.24% to 19.24% variable).
The aforementioned U.S. Bank business cards offer generous 0% introductory APR terms as well. The U.S. Bank Business Platinum extends new cardholders 20 billing cycles with no interest on new purchases (then 9.99% to 17.99% variable), and the U.S. Bank Business Cash Rewards World Elite Mastercard has a 15-billing cycle 0% introductory APR (then 11.99% to 22.99% variable).
These cards offer the best of both worlds, because you can transfer existing debt or make new purchases with no interest for more than a year. None of these four cards charge annual fees.
See related: How to pay off business debt
Consider a business loan or crowdfunding
Beyond 0% balance transfers and 0% introductory APR cards, it’s worth considering various types of business loans. Aside from the PPP, there are other SBA programs, including Economic Injury Disaster Loans, and the Federal Reserve’s Main Street Lending Program.
Crowdfunding is a creative option that’s working for some small businesses, whether in their local communities or via online platforms such as GoFundMe.
Small businesses are important parts of our communities and our economy. I’m rooting for them.
Have a question about credit cards? E-mail me at firstname.lastname@example.org and I’d be happy to help.
CreditCards.com commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 499 small business decision makers. Fieldwork was undertaken from July 14-20, 2020. The survey was carried out online.
*All information about the U.S. Bank Business Platinum Card, U.S. Bank Business Cash Rewards World Elite Mastercard, and the HSBC Mastercard Business card has been collected independently by CreditCards.com and has not been reviewed by the issuer.