In today's unsteady financial climate, it can be difficult to raise funds for a small business venture. This may be especially true if you have a poor credit rating. According to a study by the United States Small Business demonstration, lending to small businesses has declined by around 18%, which is double the standard rate of decline in commercial lending. However, if the amount you need to borrow is fairly modest, then you may find it possible to secure a short term loan or a cash advance from your credit card to cover the cost. It is simply a case of deciding which is the best option.
Advantages Of Choosing A Credit Card
One of the main advantages of choosing to use a cash advance from your credit card is that since you already have the account, you know that there is no issue getting approval. With some credit cards it is possible to get a reduced rate of interest on cash advances, especially with newly opened accounts. In order to secure a cash advance from your credit card, you will usually be required to just withdraw the money from an ATM using your designated PIN.
If you are using a rewards card or a credit card which offers cash back then you will also have the opportunity to take advantage of the subsequent rewards offered. In fact, if you need the cash to purchase items for your business it might be worthwhile simply using the credit card to pay for the transactions. Just be sure to check out what method will offer the best rewards or the most favourable interest rate.
The Downsides Of A Credit Card
The main downside of using a credit card is that you will be restricted to whatever remains of your credit limit. You may also find that the interest rate is considerably higher than what you might expect to pay on a loan, unless you
have a low promotional rate in place.
Credit cards are best used when paid off in full each month to avoid paying any interest, but if you are going to be using it more like a loan then you are not really going to be making good use of this particular resource.
Why Choose A Business Loan?
Securing a small business loan is often a much more cost effective way to raise the funds that your business needs. Even if you have bad credit there are loan providers out there which will be happy to work with you. The key is finding lenders who specialize in small business loans and/or bad credit loans. The interest rates offered on loans are usually far lower than on a cash advance from your credit card.
The type of business loan that you opt for will depending on your current situation. If you are already established and are simply looking to expand then a fairly standard small business loan is likely to offer everything you need. However, if you are jut trying to raise funds to get your small business started then a start-up loan might be much more suitable.
In the majority of cases, choosing a small businesses loan will always be more preferable to taking a cash advance from a credit card. As with any financial decision, it is important to do some careful research and make sure that you can afford to meet the repayments every month. Whether you opt for a loan or a credit card, choosing the right loan provider is every bit as important as choosing how to get the funding required.
Hugh Tyzack is both the managing director and founder of https://www.loansforbad-credit.co.uk . Hugh's company specializes in providing loans to individuals who have bad credit ratings. Outside of the world of finance Hugh is a keen musician. Catch up with Hugh on Twitter @badcreditloans8