One of most common questions we get from business owners reads like this “I have been working in XXX industry for a long time. I have this great idea and I am ready to strike out on my own. I need $XX,XXX to start up my business. Where can I get a loan?” Before the business is established, it’s unlikely for you to get a $20,000 loan from a bank or even from non-bank lenders like LendingClub or FundingCircle. However, if you have good personal credit, we have a fairly painless solution for you: credit cards.
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I know if you are Mark Cuban, you will scoff at the idea of getting a loan for your startup. I do agree business owners should save up before they start up. But I also believe it’s a great idea to have the credit options available to smooth out the bumps in the road of business ventures.
So how does it work? Basically, you will get a few credit cards that have at least one of the following features:
- low interest rates, preferably 0% introduction offer for a long time.
- no cash advance fees
- no balance transfer fees.
- same interest rates for cash advance and purchases.
Basically, you will put most of the purchase on the 0% credit cards. If it’s something like payroll, you can take the cash out of the no cash advance fee cards and then transfer the balance to the card with 0% interest rate.
Let’s use a concrete example on how this can be implemented.
Where to get credit cards with no cash advance fees
I have been looking for no cash advance fee cards for a while. But ultimately, I found that the best place to go is to get a credit card from your local credit union. Credit Unions are membership organizations that offer good credit products for their members. It’s not hard to find a local credit union who would offer credit cards with 0% cash advance fees and offers the same interest rates for both cash advance and credit card purchases. Their interest rates on credit cards are usually lower than big banks too (less than 10% vs. 15+%).
One example is StarOne Credit Union, which is the credit union I belong to. Their Signature Visa Rewards cards charge a 8.75% interest rate for both cash advances and purchases and $0 fees on everything: no annual fee, no balance transfer and no cash advance fees with $5000 minimal credit limit.
In addition, they also offer personal credit lines and personal loans up to $40K, provided that you have a checking account with them. The rate is (Prime + 5%) = 8.25% currently. Once you 0% introductory offer runs out, personal loans from credit unions can be a good option.
Check out your local/professional credit union, you might find a lot of great financing products you didn’t know before.
Where to get 0% interest rate cards
This is relatively easy to find. This CreditKarma article lists out 10 cards with 0% APR and $0 balance transfer fee for at least 12 months. The Chase Slate Card even offers 15-month 0% APR. I got a Chase Slate card with $21,000 credit limit. (My FICO is 720+ and I use Chase for both personal and business banking). This is how I am going to implement my plan for a $20,000 loan with 0% interest rate.
Using the two cards together to get a 0% credit line
With a local credit union credit card with $5,000 credit limit and a Chase Slate for $20,000, you can use the Chase Slate card for all the purchases that can be put on credit cards. You can get cash from the local credit union credit cards and then transfer the balance to the slate card. You can do this repeatedly for the first 15 months without incurring any financing cost. You can then switch to another 0% introductory offer card and continue this 0% borrowing. If you couldn’t get another one, you can go back to the credit union and open a personal credit line with (5% + Prime). Overall, if you maintain good credit scores and have sufficient income, you should be able to get the rates under 10% in this credit environment.
Once you are two years in business, have hundreds of thousands of revenue and profitable, you will have a lot more business financing options. The goal of this article is to help you get there as a startup.
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Having a $20,000 credit line available for your startup business is nice. But at the end of the day, it’s DEBT that has to be paid back. Most startup businesses fail. Use the credit line responsibly and spend it on the right things that will take your business to the next level.