Question

How can credit cards be used to start a business?

Answer 1

Credit cards are the short term debt instruments offered to individuals and corporates based on the credit worthiness. The limit of usage shall be pre-fixed in this. The credit period differs from bank to bank and depending on the credit worthiness.

Though Credit cards are not a straight good source for funding a start of business, however, these shall be helpful incase of lower capital requirement. Also, the individual/firm on which the credit card is issued should ensure to maintain the creditworthiness.

The funding can be taken immediately and can be used for the starting of the business; However, one should keep in mind that the credit period on credit cards shall be very minimum, say 45 days to 60 days. Hence, it is very important for the business, to start generating cash flows from atleast first month, to repay the debt; Generally, the credit cards shall offer a benefit of making minimum amount as prerequisite and balance outstanding amount can be carried forward to a later period at a chargeable rate of interest depending on bank to bank. This gives a breathing space for the business, to remit the minimum payable amount and start repayaing balance depending on the cash flow, however, with additional interest component. Any default on credit card payment shall have significant impact on the creditworthiness and is a penable offence. Hence, the cash flow monitoring is of utmost important to ensure debt servicing.