There is a lot of business folklore about small businesses, startups, entrepreneurs, etc with no money getting a small business credit card and using it to finance their business. The story generally goes like this:
This is a great story. It makes us feel good to hear such tales.
These are also terrible examples to follow. For every entrepreneur whose story ends with great success, there are many more that haven’t done well using credit cards. By not doing well, it may mean a non-successful business and a pile of debt or at an extreme, ending in bankruptcy.
Small business credit cards are not intended to be used this way. The credit card companies, the good ones at least, don’t want you to be using their credit cards this way. They don’t want to take “equity risk” in your company without “equity upside”. As their name implies, they are credit card companies, not equity card companies.
And you as a small business, startup entrepreneur should not do this either despite the potential chance of going down in business lore as a swashbuckling, risk-taking do anything sort of guy or gal. Small business credit cards are generally expensive forms of debt and so you should use them with caution. You are almost always personally liable and so they can be hazardous to your financial health and your dreams if not used properly.
So now you know how you should not use your small business credit card. The logical next question is what is a small business credit card good for?