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Capital sources: Credit cards
 Increasingly,
small businesses are pulling out the plastic to manage interim cash
flow needs. Credit cards now rival commercial bank loans as a source
of money for small businesses. The cash is instant and there are
no applications to fill out. However, most credit cards carry higher
interest rates than bank loans.
The credit card holder is personally liable for all
debt incurred. Don't be lulled into thinking that a card bearing
the corporate name is a debt shield. If the business is incorporated,
there is still the possibility of personal liability, as the credit
card application is really a contract between the business owner
and the lender. The issuer will usually demand a signature of personal
guarantee by the corporation owner.
The simplest way to compare card rates is to look
at the annual percentage rate, or APR. The APR measures the cost
of credit on an annualized basis. If you don't pay in full each
month, it is this rate that will determine the finance charges on
the unpaid balance.
Then look at annual fees. Many companies charge a
fee, no matter how much or little you use your card. Also consider
the penalty charges for paying early, paying late, or going over
your credit limit. These small items can drive up the cost of using
a credit card.
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