Know everything about Start-up credit card to fund your business

Summary: Using the available credit limit, entrepreneurs can finance their businesses with a Start-up credit card. But should they do it? Find out the merits of using credit cards to finance your Start-up.

14 Aug 2023 by Team FinFIRST

a startup credit card to fund your business

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Alpha Ltd, a Start-up, received a large order from its client. It wanted to increase production to complete the order on time. But there was one small hitch - funding. Being a new business, Alpha needs to have the desired liquid funds on hand. It has two options - Start-up finance via a loan or a credit card.

A Clutch survey found that 13% of the respondents preferred credit cards for Start-up capital. It was because of the numerous benefits that Start-up credit cards offered. They are readily available and can provide Start-ups capital for financial needs. There is, however, a flip side.

Let's analyse the pros and cons of using this type of Start-up finance.

Also read - How technology is helping India’s startups and small businesses lift off

Benefits of using a credit card to finance your Start-up

Easy availability

Not all Start-ups would qualify on all eligibility parameters for a business loan. This can make the medium inaccessible. On the other hand, Start-up credit cards have simple eligibility criteria and are easily available, both online and offline.

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The convenience of credit purchases

Credit cards have a preapproved credit limit. This limit allows Start-ups to make credit purchases and pay for them later. This is especially helpful when the business faces a cash crunch.

For instance, Alpha Ltd can use the credit limit of its Start-up credit card to increase its production and complete the order.

The Start-up credit card acts as a preapproved loan that can effectively meet the Start-up's needs.
Online and offline application

Start-ups have the facility to use credit cards for making both online and offline payments. Most vendors use POS machines that support credit card transactions. The card, thus, proves versatile and time saving.
Facilitates bigger purchases

It would help if you had adequate Start-up capital for big purchases like -
1. Buying new equipment
2. Hiring additional labour
3. Purchasing larger quantities of raw materials
4. Meeting working capital needs, etc.
The credit limit on the Start-up credit card can facilitate such large expenses. Moreover, many cards also offer EMI facilities. Large purchases can be broken down into affordable EMIs, spread over months, for easy repayment.
Rewards and benefits

Besides individuals, Start-ups can also earn rewards and benefits on their Start-up credit card usage. Some cards offer -
1. Reward points on every spend wherein the business can accumulate and redeem points for attractive merchandise, vouchers, and credit against their outstanding liabilities.
2. Discounts on specific spends
3. Attractive privileges for corporate uses
Building credit

As your Start-up might be new to credit, a Start-up credit card can help the business establish a credit history. As you use the card for Start-up finance, you establish a credit profile for the business. Paying credit card bills on time, without defaulting, can help your Start-up grow its credit score. A good credit score can help your Start-up get business loans at affordable rates.

Also read - 5 Common credit card issues and how to fix them?

Drawbacks of using credit card to finance Start-up

While financing Start-ups with a credit card has its fair share of benefits, some drawbacks cannot be avoided.

High-interest rates

Credit card interest rates are usually high on outstanding dues. Moreover, the interest can accumulate considerably if you default for longer periods. This creates an additional and unaffordable expense for a Start-up, affecting its profitability.
Extra fees

Besides the interest rates, credit cards also have other fees. Two of the most common ones include a joining fee and an annual fee. While the joining fee is a one-time charge, the annual fee is a recurring expense.

Moreover, you might incur charges for applying the Start-up credit card for other uses. For instance, cash withdrawals, international payments, etc. The additional fee is also a business expense that reduces profitability.
Impact on credit score

While credit cards can help your Start-up establish a credit history and build up a credit score, they also have a negative impact. Your credit score is damaged if you default on your credit card bills, pay only the minimum amount due, and revolve the balance.
Possibility of overspending

You might be tempted to overspend when buying on credit. This might affect your cash flow when you have to clear the outstanding.
Falling into a debt trap

A debt trap occurs when you overspend, amass unaffordable dues, and cannot pay off the credit card bill. As you default, the interest charges keep increasing the debt. You might take another loan or credit card to pay the outstanding dues. Paying for a new loan or credit card can cause liability issues for your Start-up's financial stability.

IDFC FIRST Bank's Business Credit Card for Start-up

IDFC FIRST Bank offers a Business Credit Card for Start-ups. This card features all of the benefits discussed, including -

Early-Stage Start-ups can avail 100% credit limit against a Fixed Deposit while growth-stage Start-ups can avail of unsecured credit limit basis eligibility with this corporate liability card
4X Reward Points on spends like cloud services, digital marketing, etc. and 10X Reward Points on international spends in foreign currency
Industry lowest interest (%APR) starting from 15% p.a.
Basis repayment history, an enhanced credit limit up to 125% of the deposit

Comparison	Bank A	Bank B	Bank C	Bank D	IDFC FIRST Bank
Joining Fee per card	₹ 2,000	₹ 250	₹ 5,000	₹ 1,000	₹ 499
AMC per card	₹ 1,000	₹ 500	₹ 5,000	₹ 1,000	₹ 999
Card Limit to FD Value	80%	80%	90%	90%	100%
Step-up unsecured limit	NA	NA	NA	NA	Upto 25% post 9 settlement cycle
Starting interest rate (APR)	36%	36%	42%	39%	15%
Reward Points	1.5X Reward on all Transactions	2X Reward on all Transactions	1X Reward on all Transactions	2X Reward on all Transactions	4X Reward Points on spends like cloud, digital marketing, etc. and 10X Reward Points on international spends in foreign currency
Credit Period	48 Days	50 Days	30 days	30 days	48 Days
FX Markup Fee	2%	3%	3%	3.50%	2%

Also read - Beyond funding: How can startups benefit from IDFC FIRST WINGS? 

Summing up

A credit card has its pros and cons. However, using the card smartly can be your Start-up's financial backup, giving you funds when need them most. Also, choosing the right Start-up credit card is important as it maximises the benefits and minimises the drawbacks.

Make a credit card comparison and find one that offers an attractive rewards program, a high credit limit, and seamless usage. At the same time, it should have low-interest rates and minimal charges.

Apply for the IDFC FIRST Bank Business Credit Card for Start-ups to support your business and make it a rewarding experience.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

The features, benefits and offers mentioned in the article are applicable as on the day of publication of this blog and is subject to change without notice. The contents herein are also subject to other product specific terms and conditions and any third party terms and conditions, as applicable. Please refer our website www.idfcfirst.bank.in for latest updates.