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.