In a commercial financing context, credit card financing usually refers to business cash advances in which working capital is obtained by business owners based upon future credit card processing activity. In this article we will use the term in discussing the growing use of personal credit cards by small business owners to obtain operating cash for their business.
Small business owners are considering new alternatives for commercial finance funding in response to the current shortage of viable commercial financing. For many business borrowers, working capital advances and credit card loans are two business financing options which have been among the quickest and most accessible sources of operating cash.
The use of credit card financing often refers to business cash advances in which working capital is obtained by business owners based upon future credit card processing activity. Alternatively the use of personal credit cards to obtain a cash advance is also referred to as a credit card loan. With business finance funding shortages, small business owners are increasingly using both approaches to obtain operating cash for their business. The two financing approaches are not equal in terms of how they are viewed by commercial financing experts although the strategies might be called by the same name occasionally.
Business lines of credit and other variations of working capital loans have been recently cancelled or reduced by many commercial lenders. In response, many business owners have been forced to rely on cash obtained via their personal credit cards to sustain their businesses. In order to prepare for several of the most undesirable actions being taken by many credit card loan lenders, we urge all commercial borrowers to review the predatory lending discussion in The Working Capital Journal.
There are two particular observations we want to emphasize about small business owners using personal credit cards to obtain operating cash: (1) This really is a business financing method of last resort that should be avoided whenever possible. Before assuming that this is the only source of capital available, commercial borrowers should consult with a working capital finance expert. The possibility of business cash advances and working capital loans should be thoroughly explored. (2) This questionable method of obtaining commercial finance funding will prove to be increasingly more difficult because credit card issuers are already cutting back on their unsecured lending programs.
Most banks are doing with credit cards what they have already done with business line of credit programs. They are reducing or cancelling credit lines even when borrowers have a superb payment record. The rationale for banks reducing both credit card lines and commercial lines of credit is similar. With unsecured commercial loans or personal loans, banks fear that massive defaults are almost inevitable due to a very shaky economy and business lending climate. In both cases (personal credit card loans and working capital loans), banks know that they have no collateral to fall back on since these lending approaches are both on an unsecured basis (unlike residential real estate loans in which the real property is pledged as collateral). Many small business owners use home equity lines of credit to obtain operating cash, and these funding sources are also diminishing in most areas of the United States. Although these lending programs are backed by collateral, the value of homes in many areas has decreased to the point that many outstanding loans exceed the current property value.
One of the most disturbing and frustrating occurrences in the current difficult commercial financing environment is the lack of clear information for many business owners about which funding options are realistic and possible. Thousands of borrowers might have obtained operating cash from personal credit cards when there were better options for this one factor alone (confusion and misinformation).
Due to the growing tendency of several major credit card issuers to exhibit predatory lending practices, the use of personal credit card loans should be avoided. At a minimum, each business owner should contact a business finance funding expert to determine if a business cash advance program or a working capital loan program can be used to obtain needed cash.
Failure to Communicate Within a Small Business
A failure to communicate can create havoc in several critical areas for small businesses. Three potential solutions include business training, negotiating and writing. Ironically these functions are also among the most likely to be severely impacted by a failure to use business communications strategies effectively in the first place.
Communication Strategies for Small Businesses
When individuals and businesses talk about communication, there can be many possibilities as to what they are including in the topic. While cell phones and tablet computers might be relevant to small business owners, the more actionable areas of interest are likely to include business proposals, negotiating and teamwork. Writing seems to have fallen into neutral territory as a strategy for communicating, and along with that the use of business proposal writing has also declined within many small businesses. Until companies discover more effective business development strategies, writing business proposals should be looked at closely.
Finance and Business Mistakes
Business and finance mistakes can be costly and cause other serious complications. While it can be helpful to learn from mistakes, it is also preferable to avoid such situations whenever possible.
