In my opinion, credit cards are a financial tool. Just like a nail gun or a table saw can be dangerous when used irresponsibly (the more powerful they are, the more dangerous they can be), so credit cards can cause serious financial damage when misused.

However, it’s also true that the majority of small businesses are funded with credit cards. Logically, this makes sense, since, as we all know, the hardest time to get a loan is when you need one. I have worked for at least two different small businesses in which the owners had several credit cards active, since it was often cheaper (and always quicker) to get loans on their credit cards than to try and get money from a bank for working capital. They would apply for any credit card they were offered, just in case they needed the credit in the future. (By the way, I don’t recommend signing up willy-nilly for any credit card, as that can destroy your credit report as well – too many inquiries.) In an extreme case, I had a boss who funded his cash flow on an American Express card (back in the days when that meant he had to pay it off each month – but he did rack up the mileage.)

If you think about it as a small business owner would, credit cards are often the cheapest form of borrowing you can find. With the credit limits on my cards currently, I have access to almost $100,000, much of which I could get on terms for 3 – 12 months (0% financing) UNSECURED. I’ve worked for a guy who did short-term, secured (by real estate) bridge loans charging 12% interest and 5 points in fees, often for a 3 – 6 month loan, and he’d take the real estate if they didn’t pay on time. (Yes, I know – loan shark, but its still less than some places charge for bad credit (high-risk) customers.) Given a choice, which financial tool would you rather use?

That’s why I say, used responsibly, as any tool should be, credit cards can be a cheap form of financing for small business, and even individuals. The key is to use them wisely.

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