Lending Club Blog

Why Use a Personal Loan or Personal Credit Card to Fund Your Small Business

The following is a guest post by Odysseas Papadimitriou, CEO and Founder of CardHub.com, an online marketplace for credit card offers and gift card exchange.

Small business success has always been a risky proposition.  This fact is ever more glaring in difficult economic times such as those we are currently experiencing.  Thus, small business owners often search for the best money-saving deals possible and look to minimize cash flow uncertainty.  Interestingly, one way in which they can accomplish both of these goals is to avoid funding certain purchases with business credit cards.

The new credit card law (CARD Act) has safeguarded consumers from predatory issuer practices by instituting numerous protections for personal credit card use.  Credit card companies now can’t do things like change a customer’s interest rates during the first year his or her account is open.  Similarly, issuers cannot increase the APR of an existing balance unless the account holder is at least 60 days delinquent.  Such measures have increased the predictability and usefulness of personal credit cards, but, business credit cards, unfortunately, did not receive the same protections.  Thus, holding a balance on one is risky because credit card companies can raise interest rates at any time and for whatever reason, making debt more costly and extremely hard to manage.

Small business owners need not be resigned to using business credit cards simply because they sound like the logical choice. In fact, either a loan or a personal credit card would be a very good replacement to fund purchases that would lead to an owner carrying a balance at the end of the month.

Many owners might be reluctant to eschew their business credit cards for these options for fear that doing so will make them more vulnerable to liability.  People often assume that because a business credit card is geared toward businesses, it naturally shields them as individuals from any financial troubles like delinquency and default by conferring liability on the business itself.  However, there are no liability differences between small business credit cards, personal credit cards and personal loans.  The individual owner is solely liable for each because, in the minds of lenders, a small business owner is essentially his or her business.  There is, therefore, no reason to risk using a business credit card for purchases that will not be paid in full at the end of the month.

A personal loan from a company like Lending Club would actually be a good option for funding this type of spending because such organizations often offer loans with fixed interest rates and lower net costs than those provided by traditional banks.  This type of loan would provide the debt stability that a business credit card cannot.   You can use a Lending Club personal loan to boost an existing business or as a complement to your start up funds.  However, taking out a loan to pay for future purchases requires foresight and discipline.  An owner employing this method would have to be able to accurately determine future spending and would need to allocate his or her funds intelligently once a loan is garnered.

Small business owners can also use personal credit cards for those purchases that will lead to them carrying balances.  As mentioned, personal credit cards are covered by a variety of CARD Act protections that, among many other things, make their future debt payments predictable.  Therefore, with the use of such credit cards, owners are afforded a clear sense of their company’s overall finances without having to worry about or account for a potential increase in the cost of their debt.

Still, business credit cards are valuable to small business owners.  Such cards make it easy to track business spending and allow business owners to dole out cards with personalized limits to employees, while earning rewards on employee spending.  Thus, because of their operational utility, business credit cards should be used only for those purchases that will be paid for in full at the end of the month.

Therefore, in practice, a small business owner should use either a personal credit card or a personal loan in combination with a business credit card.  Doing so will ultimately confer upon this individual the benefits of each payment type, allowing for full debt control, certain business utility and organizational stability.  Long-term business success centers on the ability to adapt, so adjust to the changing credit card landscape, evaluate your business and select the combination of funding options that will best suit your needs.

Saturday, January 15th, 2011 at 4:05 am

Comments (1)

  1. SOS:

    Seems like good advice… And you make an important point… It’s
    very important to pay your monthly balance in full and avoid high
    interest charges.

    January 17th, 2011 at 2:09 am


Welcome Home

Lending Club named #5 on Forbes’ Most Promising Companies List

Get ready for tax season with Lending Club’s Tax Form Guide

New Adjusted Return Metric

See more
Lending Club Awards
  • Archives z

Recent Posts

Growing Your Business By Using Capital

Smart small business owners don’t wait to consider borrowing… Read More »
August 19, 2016

9 Reasons to Open an IRA

Retirement: a word that often comes with many connotations.… Read More »
August 5, 2016

6 Reasons to Get a Personal Loan

While it would be great if we all had enough… Read More »
July 29, 2016

Lending Club and the Marketplace Model

Some of our investors have observed the funding environment… Read More »
July 28, 2016

A Recap: Credit Strength on the Lending Club Platform

We are proud of our… Read More »
July 14, 2016

A Message to Investors from our President and Acting CEO

Today, our President and acting… Read More »
May 19, 2016

Lending Club Receives Tribeca Disruptive Innovation Award

Disruptive innovation comes in many… Read More »
April 29, 2016

Lending Club Business Financing Review

One of the biggest challenges of owning a small… Read More »
April 27, 2016

Lending Club partners with Funding Circle and Prosper to launch Marketplace Lending Association

Read More »
April 7, 2016

Lending Club Welcomes Maryland and North Dakota Investors!

We’re now open to retail… Read More »
February 23, 2016


We went public today!

Ringing the bell this morning at the New York… Read More »
December 11, 2014

New and Improved Statistics Page

We recently redesigned our Loan Statistics page to make… Read More »
November 13, 2014

Lending Club Honored with Economist Innovation Award

This month I was honored… Read More »
October 15, 2014

Welcome Vermont Investors!

Today, we’re thrilled to welcome residents of the state… Read More »
September 4, 2014

We filed to go public today

We filed a registration statement with the SEC today… Read More »
August 27, 2014

Our Billion Dollar Quarter

We’re excited to announce  that we’ve facilitated over $5… Read More »
July 8, 2014

Is Lending Club Available in My State?

Is Lending Club available in my state? That is… Read More »
July 7, 2014

Lending Club Joins Senator Cory Booker to Discuss Improving Access to Capital for Small Businesses

Read More »
June 20, 2014

Lending Club Named a CNBC Top 50 Disruptor for a Second Year

For the second year in… Read More »
June 17, 2014

PRIME is now Automated Investing

Lending Club is excited to announce that PRIME has… Read More »
May 14, 2014
View All w