- 16 Oct
An Alternative To Funding Business Through Credit Cards
Are you funding your business through your personal credit cards? It is an easy trap to fall into, and one that can prove to be very expensive. There is a cheaper alternative method of funding your business.
An article in the Guardian (21/09/19) quotes figures from Moneyfacts showing that average credit card interest rates have now hit 24.7% - their highest point since 2006. With base rate holding steady at just 0.75% that is a huge margin above base, and this is just the average rate - rates can be much higher.
The Cost Of Credit Card Funding
If you are using credit card debt to finance your business, this can be a very expensive method of finance. Say you were borrowing £5K on a credit card at APR 24.7%, that would cost £1,235 per annum just in credit card interest - that's £247 for every £1K borrowed.
Here are some other calculations of the cost per £1K borrowed, according to different rates:
- APR 19.9% - thats £199 of interest per £1K borrowed each year.
- APR 24.9% - thats £249 of interest per £1K borrowed each year.
- APR 36% - thats £360 of interest per £1K borrowed each year.
Receivables Financing - An Alternative To Credit Cards
A smarter way is to use the outstanding receivables of your business as collateral for receivables financing, making your business responsible for its own financing. Even smaller businesses are likely to be secure funding rates that will work out much cheaper than the credit card rates mentioned above. Follow this link for more examples of pricing for receivables finance.
The best way to proceed is to have us check the rates that would be available to your business, based on your circumstances. This type of funding typically releases prepayments against your outstanding sales ledger of unpaid invoices. This means you could get a significant cash injection on commencement. Part of this could be used to repay more expensive methods of borrowing, such as credit card debts.