Many small business owners use personal credit cards to cover their expenses. Here’s why that’s a bad idea.
We’ve all heard the stories of founders using their personal credit cards to build billion-dollar companies. That’s how Airbnb and Atlassian got off the ground before any investors had ever heard of them. But while you might be tempted to take a page out of their book — who doesn’t want to be the next Scott Farquhar or Michael Cannon-Brookes? — you should remember that these stories are the exception rather than the norm.
In most cases, using personal credit cards to fund your business can lead to high interest charges, puts your personal assets at risk and makes it hard to access other forms of credit for your business down the track. In fact, Airbnb co-founder Mark Phillip has warned other entrepreneurs away from this approach.
“It was high anxiety and high stress. The credit card bills kept going up and we really had no idea when they were going to get paid off,” he told CNBC.
One of the biggest downsides of using a personal credit card to finance your business is that they generally charge much higher interest rates than other forms of finance, such as a line of credit or bank loan. The average standard credit card rate in Australia is 19.94%, and in New Zealand, it’s 17.3%. Unless you have a solid plan to use credit cards as a temporary stop-gap, you could end up accumulating a pile of debt that takes years to pay off.
Lack of access to finance drives credit card use
Despite this, surveys show that 39% of Kiwi small businesses and three out of every four Aussie small businesses have used personal credit cards for business purposes. It’s not hard to understand why, since many small businesses struggle to access traditional finance options at affordable rates.
But at the end of the day, personal credit cards simply aren’t a safe or sustainable way to run your business. Even if you’re meeting the minimum monthly repayments now, what happens if your income drops due to an unforeseen event and you no longer have sufficient cashflow to cover your repayments?
Fortunately, you don’t need to choose between a high-interest personal credit card and the hurdles of obtaining a bank loan because buy now, pay later (BNPL) apps like hummpro offer an alternative.
A smarter way to fund small businesses
Built to meet the needs of small businesses, hummpro delivers all the benefits of a credit card without the interest. You can apply for access to up to $30,000 in just a few minutes, and once approved, you’ll get a digital card that you can store in your mobile wallet and use anywhere that accepts Mastercard. You’ll always have at least 30 days before you need to make a repayment.
If you have sufficient funds to pay off your entire balance when it’s due, you won’t incur any fees. But if not, you can defer part or all of your repayment until you do. To defer your repayment for another month, you just need to pay a fee of 3.5% of your balance upfront. To split your repayment into 6, 9, or 12 equal monthly payments, you need to pay a monthly fee of 1.5% of your starting balance on top of your repayments.*
But no matter how long you need to make a repayment, you’ll always know how much you owe.
Be smart about payments and get all the benefits of a credit card without the interest with hummpro.
*The 1.5% fee is fixed for the duration of the Plan and is based on the starting Plan balance. The fee is charged each month when the Plan instalment is due and is only payable if the Plan remains open. If the Plan is paid off early, the remaining Plan fees will not be charged. 6 mths – maximum total Plan fee is 9% of the Plan balance. 9 mths – maximum total Plan fee is 13.5% of the Plan balance. 12 mths – maximum total Plan fee is 18% of the Plan balance.