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As the owner of a small business, you may feel like a modest contributor to the economy, but your impact is anything but small. In fact, small businesses of less than a year create 12% of all new jobs, strengthening that small businesses of all types are essential both to the economy and the growth in employment.
Although your business has the potential to supply more job creation than your size does not suggest, you may feel the pressure of economic pressures that many small businesses are faced today. Last year, the employment of small businesses decreased by 51,200 jobs, and revenues dropped on average by $ 11,850 per company, according to intuit quickbooks' Annual report of the small business index. With the increase in interest rates, inflation and fewer financing options, owners of small businesses seek means to maintain operations being executed and maintain cash flows, which may present challenges because they assess their options to fill the cash difference.
Credit cards are source 1 of funding in the United States
Historically, the owners of small businesses turned to loans in solid economic periods and relied on credit cards during more difficult periods – and that is exactly what we see today. Due to their accessibility, flexibility and their ability to meet immediate financial needs, credit cards have become a main source of financing for small businesses such as yours.
Credit cards can be particularly useful for managing cash differences, unforeseen expenses and short -term financing. However, this dependence increased more quickly than repayments. The data show that the use of credit cards has increased from the COVVI-19, and the banks have decreased on traditional long-term loans. With fewer financing options available, 1 in 10 small business turns to credit cards as the main financing tool, based on them for more than 75% of their monthly expenses.
This raises the question: Are credit cards a reliable way to access funding and manage cash flows appropriately? The truth is that it depends on how you use them. Here are three tips to make sure that credit cards are the right financing option for your business and when to use them – or not.
Related: I thought I knew finance – so I resumed my family's franchise. Here are the hard truths I learned.
Pay particular attention to cash flows
When managed strategically, credit can be a precious tool for developing a business. But, without plan, it can also be a potential risk of debt assembly, which can hold you in the long term.
Understanding how money penetrates and out of your business at any time is the first step to decide whether the execution of the credit is logical. To do this, follow how your business reacts to sales cycles, stock fluctuations and economic changes. Understanding when and why your cash flow is tightening – whether due to seasonal slowdowns, delayed receivables or unexpected expenses – can help you prepare rather than count on the loan. A way to avoid unnecessary debt is to build a financial cushion, such as a cash reserve of three to six months, so that you can manage the gaps without putting everything on a map.
The more visibility in your finances, the better you will be positioned to use credit cards strategically rather than out of necessity. Digital tools facilitate this process, with accounting and financial software classified as the most precious tools of small businesses – 95% of small businesses use digital tools to help manage and develop their business. The right accounting and cash management software can help you follow expenses, automate billing and provide income trends. In turn, you will have a clearer image of the use of a credit card is logical and when it can cause financial pressure more.
Trust an accountant
An accountant can serve as a second look at your finances, helping you make informed decisions on spending, investment and loan. Treat your accountant as an advisor, compared to simply help specific financial tasks such as taxes can make sure you have the expert advice you need. They can help you avoid credit reluctance and provide expert advice on managing your cash flows.
Beyond daily financial surveillance, working with a financial expert offers greater visibility on the overall health of your business and can even improve your chances of obtaining additional funding. In addition, they can help you follow and reconcile your credit card transactions, ensuring that your sales remain manageable and aligned on your financial objectives.
Related: how to take advantage of credit cards for business growth (the right way)
Evaluate financing options
Credit cards are one of the easiest financing options to access, but that does not always mean that they are the right choice for your specific commercial needs. They work better to cover immediate expenses such as travel, stock purchases or punctual costs. But if you hope to make a larger investment – such as opening a second location, improving equipment or hiring a new member of the team – a small business loan is smarter to access lower interest rates and structured reimbursement conditions, making them more sustainable for long -term growth.
I recently spoke with Kate Pawlowski of Done & Done Home, who shared useful information on how she assesses her financing options. She told me that even if they still used credit cards in a pinch, they prefer the long -term loans for growth -related investments, such as hiring or launching something new, because reimbursement is more manageable with better interest rates. In fact, she said that she had noticed that the type of expenses she could put on credit cards often does not always have a significant impact on her business. The type of expenditure that leads his business to growth, for example, is an expense like payroll, which cannot be resolved with credit cards.
If cash flows are unpredictable, consider a flexible financing solution that can help without adding a high interest debt to your balance sheet. Take the time to assess your options and be smothered on your loan partner. Go around to find the best loan rates and the refund conditions that meet your business needs.
A strong credit relationship can give small businesses they need during turbulent times, but only when borrowing decisions are taken strategically. Companies with the capacity to access various sources of capital and loan products will be able to balance their options and make the best financing decision for their expenses. Your business is essential in the future of the economy, and the guarantee of good financing will help support your sustainable impact.
