Suppose you wanted to start a small business. You have several personal credit cards with credit limits that would offer adequate startup capital. You would prefer not to take out a new loan, and you don’t have enough cash saved up to cover the expenses. Should you use your personal credit cards to finance the launch of your small business?

Here are some factors you should consider before deciding to fund your startup with credit cards, and some tips to help you use them responsibly if you do decide to use them:

Risks and Rewards of Credit Cards as Business Financing

Using credit cards to finance a business can be risky. For example, you have no guarantee that your business will be successful, and even successful businesses can take years to get to that point. Will your credit cards be enough to cover expenses until your projections tell you the business will be earning a decent profit? If not, you’ll quickly run up debt but risk losing your income source to pay it back.

You also have to consider credit card interest rates. If you use a low interest credit card like the Aussie MasterCard, your interest rates may be comparable to some personal loan alternatives. However many credit cards feature high interest rates, meaning a loan may be a more affordable financing option.

While there are risks, credit cards also have a positive side. For example, those personal credit cards may be immediately available. You also wouldn’t have to apply for additional financing, meaning you wouldn’t add new applications to your credit file (and those applications are viewable for five years).

Tips for Using Credit Cards for Small Business Financing

If the rewards outweigh the risks for you, keep some of the following tips in mind as you use your credit cards to fund your new startup:

1. Don’t underestimate startup costs. Consult a professional financial planner if you need to. Otherwise you may rack up debt only to discover that you don’t have enough money available on your credit cards to cover all of your costs.
2. Remember to factor in operational costs. You won’t immediately become profitable once the startup phase is over. You’ll need to have enough money available to pay for ongoing expenses at least until hitting a break-even point (such as employees’ salaries, leases, and utility bills).
3. Don’t use credit cards for everything. If you do have enough cash available for smaller purchases, consider using it. The less you put on the credit cards, the less you’ll pay in interest.
4. Maintain your minimum payments. It might be tempting to charge a large amount of money up front, but if you can’t afford the monthly payments on that balance, you’ll risk having the cards cancelled (and your credit history ruined).
5. Replace your cards with another funding source. If you choose to use personal credit cards for business financing, do so with the intention of replacing them as quickly as possible. For example, you might want to use them temporarily while you wait for a bank loan to go through (where you’ll then repay them in full).

Using personal credit cards to finance a business startup puts your personal credit file at risk. If you do choose to use credit cards for funding, make sure it’s as a last resort. Ideally, first consider savings or lower interest lending options (and borrowing under the business name rather than through a personal account).