Using Cash Advances from Credit Cards to Expand Your Small Business

Things are going well. You recently started a small business and it has turned out to be more successful than you had ever imagined. Your initial sales have proven to be higher than expected and your business model has been a success. Like any successful small business owner, your next logical thought is about how to grow and expand your business. But to do so, you likely are in need of additional financing. Unfortunately, because your business is not currently generating enough free cashflow that waiting to allow you to expand at the rate at which you would like to do so, you decide to take a cash advance from your personal credit card in order to continue to expand your business. However, this is a terrible idea for the reasons discussed below.

Cash Advances from Credit Cards Are Not a Good Solution for Your Small Business Funding Needs

Tapping a personal credit card for funds to expand your small business can be a legally risky and expensive way to obtain funds to operate your business. It comes with certain legal risks that you, as a business owner, may not want to be taking in using personal instead of corporate funds to expand your small business. If you do indeed fail to repay the cash advance from your personal credit card, the credit card company can obtain a judgment against you for the unpaid funds and execute that judgment against your personal assets. Depending on the state you live in, this may mean that the credit card issuer can garnish your bank account, file a lien against your house, have your vehicle(s) seized and sold at auction, or other measures to enforce any judgment they may obtain as a result of your non-repayment of the cash advance from your personal credit card. It also puts your own credit history and personal assets at risk if you fail to pay those funds back.

Cash Advances from Credit Card Come with Many Fees and High Interest Rates

In addition, credit card cash advances also come loaded with fees and often exorbitant interest rates. First, most credit cards will have a sky high interest rate; a CreditCards.com November 2013 survey of 100 top credit cards found that the median annual interest rate for cash advances is about 24 percent, or about 6 points higher than the interest rate on purchases charged on those cards. Second, credit card cash advances begin accruing interest immediately, unlike purchases made on your credit card, which do not begin to generate interest until you have paid less than the full amount due on your credit card bill. Therefore, a cash advance from a personal credit card will cost you dearly.

Credit Card Cash Advances Have Low Limits on How Much Cash You are Able to Withdraw

Another reason cash advances from a credit card are a bad source of funds to expand your small business is because many credit cards will allow you to charge, for purposes of an example, $40,000 per month, any cash advances may be limited to a fraction of that amount, such as $10,000 or even $5,000. This may not be sufficient to meet your small business’s financing needs. This is particularly true if you are the owner of a new or relatively young business, from whom vendors may require cash payments because you and your business do not have an established relationship with them.

Using a Credit Card Cash Advance Can Have Adverse Legal Consequences for Business Owners

Taking a cash advance from a credit card or any personal line of credit to fund your visit is a bad idea in that it violates the separation between your corporate entity and yourself. As any lawyer will tell you, it is important to maintain this legal separation between yourself and whatever corporate entity you use to operate your business. Doing so keeps you from being liable if the business is sued.

Consider a Business Loan from BestOffer Capital Instead of a Credit Card Cash Advance

Funding your small business with a cash advance from a personal credit card is not the ideal way to fund your small business’s continued expansion for all the reasons described above. Instead, you should consider obtaining financing through a small business loan through BestOffer Capital. BestOffer Capital offers a variety of financing programs for small business owners.

Takeaways

  • Cash advances from personal credit cards typically carry high fees as well as extremely high interest rates.
  • Cash advances can have artificially low limits that may not provide you with the amount of funds you need to expand your small business.
  • Tapping a credit card for a cash advance can have adverse legal consequences for, the borrower and small business owner.
  • Business loans allow you to borrow additional sums of money that often will exceed the amount of money that you would be able to access through a credit card cash advance.

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Amanda Seyfried
Sales & Marketing, LAFFERTY ELECTRIC INC

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