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Watch the video above to see a brief comparison of the different lending products and features, to help you understand how credit options can support every stage of your business journey.

 

Video transcript:

 

[Visual title: Borrowing options for small businesses]

 

Most small businesses use credit—like a loan or a credit card—at some point.

 

[Visual of a small business owner accepting a delivery of soil and seeds]

 

Let’s take a quick look at some borrowing options that can help you cover anything

 

[Visual of a flower truck expanding into a larger truck]

 

from the day-to-day to a big expansion.

 

[Visual showing Business credit card, Grace period and Next billing cycle]

 

If you haven’t established your business’s credit yet, getting a business credit card could be a good place to start. It’s great for everyday purchases, and business cards may come with a grace period—where you won’t be charged interest on your purchases until the next billing cycle.

 

[Visual of Cash back and Travel rewards cards]

 

And many credit cards have rewards programs—like cash back or travel rewards.

 

[Visual title: Unsecured lines of credit]

 

Now, an unsecured line of credit works like a credit card, but it gives you a lot more flexibility. The main difference is that you can use your entire credit line as cash—

 

[Visual of a hand looking over Invoices and Payroll]

 

which means you can use it for any of your business's operational expenses.

 

[Visual showing higher credit line and lower interest rate on unsecured line of credit vs. a credit card]

In addition, the amount you can borrow using an unsecured line of credit is often more than you can with a credit card. And the interest rates on an unsecured line of credit are often lower than those on a credit card.

 

Like a credit card, the interest rate is variable, and your minimum monthly payments are based on how much you’ve borrowed. However, there's no grace period—meaning interest will start to accrue on what you borrow as soon as you borrow it.

 

But, because of the lower interest rate, an unsecured line of credit can be a cost-effective way of covering the gaps between your payables and receivables—if you need the access to credit.

 

[Visual title: Secured term loan]

 

Now, you might choose a secured term loan if you're looking to cover a large expense like new equipment or a renovation.

 

The loan is secured by the item you're purchasing. This works like an auto loan, where you offer the asset you're purchasing, your car, as collateral.

 

[Visual of types of secured term loans: Equipment loan, Commercial vehicle loan, Real estate loan]

 

Unlike a line of credit, secured term loans are more structured: you’ll receive the money for your purchase all at once, and you'll make fixed monthly payments over a predetermined amount of time. For example, you might get a 5-year loan. That means your loan should be paid off within 5 years.

 

There are different types of secured loans that serve different purposes.

Some have specific lending requirements. But these loans generally have lower interest rates than you'd get from an unsecured line of credit,

 

[Visual of a flower truck transforming into a flower storefront]

 

which may help if you're planning on a major upgrade for your business that you'll need a few years to pay off.

 

Different borrowing options will have different pros and cons for you and your business.

 

[Visual weighing hypothetical pros and cons of a Business credit card, Lines of credit and a Secured term loan]

 

Get in touch with your small business specialist to learn more about your options and how Bank of America can help your business grow.

 

[Visual: Bank of America logo]

 

Banking products and services provided by Bank of America, N.A. Credit cards issued and administered by Bank of America, N.A. Credit cards, credit lines and loans are subject to credit approval and creditworthiness. Some restrictions may apply. Bank of America is a trademark of Bank of America Corporation. Bank of America, N.A. Member FDIC © 2019 Bank of America Corporation.

Are credit cards great, or what?

 

You can use them easily, anytime, for home or office, for whatever you need, and there is no paperwork to fill out, no pre-purchase approval required. For the busy entrepreneur, credit cards make business life easier.

 

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Having at least one credit card is often an essential part of starting and growing a small business. After all, if you consider that the most common funding methods for new ventures are 1) friends, family, and 2) credit cards, having one makes a lot of sense.

 

There are plenty of other benefits to having a credit card, the most notable of which is ease. Having a credit card means that you do not need to apply for a loan, you do not need to make your case over and over to investors, and you do not need to put yourself out there in front of your friends and family. You can use your credit card whenever and however you’d like.

 

That said, there are some risks when it comes to relying on credit cards for funding your small business. Avoiding those issues is a matter of using your credit card wisely and carefully.

 

Having spent a decade as a practicing attorney who specialized in financial law, I have seen it all when it comes to credit cards. The good, the bad, and yes, the ugly. Here are then are some of the best tips I have for using credit cards the right way in business.

 

1. Avoid the credit card trap: The credit card trap is when you charge things you cannot afford and have no way to pay the cards off. It’s a trap because you can get yourself stuck in a cycle of high balances yet paying minimum payments that last a long time.

 

You’ve got to have a plan.

 

Before you make purchases, you must come up with a plan for exactly how and when you will pay off your balance. By getting yourself into a forward-thinking mentality early on, you will save yourself from feeling stuck and stressed later.

 

Added bonus: By paying the cards off on time per your plan, you will establish even better credit.

 

2. Use cards with a lower interest rate first: You should be making your biggest purchases on whichever card has the lowest interest rate. You will end up paying less in the long run by doing things this way. A lot of people overlook this strategy, but it will save you big bucks over time.

 

3. Know your credit card benefits: If you can, find a credit card with benefits that are useful to you and your business, such as travel miles if you travel for business. This will help you cut a few expenses here and there.

 

4. Be prudent and mindful: The best rule of thumb for having one or more credit cards is to simply be prudent, mindful, and to think rationally. Things can be very exciting when you are starting up your business, which means it can be easy to get carried away. One of the most important things to remember is to never think emotionally; do your best to always think rationally. Otherwise, you may have a hard time distinguishing between things that you want versus things that you need.

 

Remember, there is good debt and bad debt. Using a credit card to help you launch a business, and with a solid plan to pay off the balances in fairly short order is good debt. Charging a trip to Hawaii on a card with 18 percent interest because you are burned out is bad debt.

 

We like good debt. It helps us grow our businesses.

 

We don’t like bad debt because bad debt is, well, bad.

 

 

About Steve Strauss

 

Steve Strauss Headshot New.pngSteven D. Strauss is one of the world's leading experts on small business and is a lawyer, writer, and speaker. The senior small business columnist for USA Today, his Ask an Expert column is one of the most highly-syndicated business columns in the country. He is the best-selling author of 17 books, including his latest, The Small Business Bible, now out in a completely updated third edition. You can also listen to his weekly podcast, Small Business SuccessSteven D. Strauss

 

Web: www.theselfemployed.com or Twitter: @SteveStrauss

You can read more articles from Steve Strauss by clicking here

 

Bank of America, N.A. engages with Steve Strauss to provide informational materials for your discussion or review purposes only. Steve Strauss is a registered trademark, used pursuant to license. The third parties within articles are used under license from Steve Strauss. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice. Bank of America, N.A. Member FDIC.  ©2019 Bank of America Corporation

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