Business Owners Look to Personal Credit Cards for Payments Needs

May 30, 2018         By: Steven Anderson

A Dilbert strip once featured the Pointy-Haired Boss, in a fashion only he could, staring down a small business owner and telling same that his small company was about to give the much larger company “an interest-free loan.”The PHB then clarified by noting that there was no paperwork to sign; the much larger company would just pay the small business’ invoices late “while snortling.”  A new Nav study shows just how deep this kind of problem goes, as small business owners increasingly turn to personal credit cards for financing.

The Nav study found that small business owners had an average of 4.78 personal credit cards, as compared to 2.32 for the average consumer. That’s better than double the average, so a clear trend is emerging. The doubling didn’t stop there, as the average total limit was also nearly double; consumer limits were around $18,401, while business owners had limits around $35,291.

Additionally, the Nav study found that 24 percent of small business owners actually turned to a credit card for business funding, which, as Nav noted “…confirms that finding funding for a business is difficult…”, and worse, “…that some small business owners could be overleveraging their personal credit to fund their business.”

In turn, Nav noted that, by using personal credit cards to fund business expansion, businesses not only miss out on a chance to build a business credit profile, but also run the risk of ruining the business owner’s personal credit score.

To which I respond, Nav, what choice do they have? Small businesses aren’t turning to credit cards because it’s fun and easy. They’re turning to credit cards because that’s the only option they’ve got. When larger businesses are willing to take advantage of smaller firms by paying invoices late—a huge problem in Europe, at last report—or engaging in other chicanery due to a small business’ lack of leverage, the end result is businesses needing funding by any means available.

It smacks of opportunity for someone to offer easy-access funding for the small business, but also, shows us the power of mobile payments mechanisms. It’s not just about getting things without carrying cash; sometimes it’s about bridging that critical gap between filing an invoice and getting paid for it.