Fund A Small Business Loan With Your Credit Card?
[dropcap]A[/dropcap] small business loan is the sum borrowed from a bank or financial institution by an individual or small business to begin, expand, or run a small business. Procuring a small business loan may be difficult because the banks are often unwilling to lend money to small establishments because of lack of mortgage. The banks do not want to give loans particularly to startups because they have more chances of failure according to their pre-set notions and a few bad debts. Giving loans to small businesses is riskier than lending to established companies and mortgage lending for banks.
In addition, the underwriting costs for verifying, processing, and evaluating a small loan is almost same like those of larger loans. Therefore, banks are more willing to enhance their profits by lending larger loans. Moreover, since the loans for small businesses are often rejected, they have to pay more interest rate than the big businesses. Small business loans may begin from as low as 1,000 INR and go up to several thousands of rupees depending on the size and scale of your business.
What is a small business loan on your credit card?
Firstly, you must know what a loan on your credit card is. This is similar to the personal loan, the only difference is that it is pre- approved. Moreover, you do not have to submit any documents for the loan on your credit card.
Although you can take separate loan from the bank, it may take a few days and you have to submit all the relevant documents to the bank or lender. However, with small business loan on credit card, you do not need to go through any documentation and verification, which makes it the fastest source of unsecured loan.
Loan on a credit card is frequently mistaken for withdrawal of cash on credit cards. They are different from each other in terms of interest rate. The rate of interest for credit card loan is equal to if higher than the personal loan. On the other hand, the interest on withdrawal of cash is much higher than the credit card loan and there is significant limit on withdrawal of cash compared to the eligible amount of loan.
Tips to get a small business loan on your credit card
- Take a loan when it is urgent
Since you have to pay high rate of interest on the credit card loan, you must take it only when it is urgent and your small business loan is not approved by other financial institutions. Use the amount of loan judiciously in your business and pay back the installments in time.
- Transfer of balance
Some banks provide loan against the credit cards of other banks by means of Balance Transfer on the EMIs. This means that you have to transfer your outstanding balance on your remaining credit cards to just one card as well as pay the EMIs.
- Using the credit limit
You can also ask your bank to provide you loan over or within your credit limit. Depending on your credit rating, you will be given the small business loan on your credit card
Eligibility for small business loan on credit card
Since this kind of loan is unsecured and is provided without any collateral, it is offered to a few selected credit card holders. The credit card issuers are very particular about the credit history, good repayment and purchase pattern, etc. So you must fulfill their criteria to procure a small business loan on your credit card.
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