It’s amazing how many owners treat small business financing as a last resort. Few consider it until something’s gone really wrong. And what usually goes wrong is that they’ve run out of other options because they’ve run out of cash or their credit cards are maxed out.
On the other hand, owners who use financing as a strategic tool rarely experience cash flow crises or maxed-out business credit cards.
The difference between these two types of owners is how they think about debt.
The Most Expensive Financing Decision You Don’t Know You’re Making
Most small business owners fund their endeavors with credit cards and personal savings. According to the Federal Reserve’s 2026 Small Business Credit Survey, credit cards are among the most commonly used financial tools among small businesses. They’re fast, familiar, and don’t require an application, a fee, or a waiting period.
But what credit cards do come with is a price tag that compounds monthly. Interest is one of those costs that undermines your business performance without you noticing it.
The average business credit card APR is 15% to 20% if you have good credit. And if you don’t, the APR can be as high as 36%.
Traditional bank loans, on the other hand, have rates in the range of 6.80% – 11.00%. And SBA loans with fixed APR are 11.75% – 14.75%. So we’re looking at a gap of 0.25 to 8.25 percentage points between credit cards and SBA loans, and 4 to 13.2 percentage points for traditional loans with good credit.
And the gap will compound monthly depending on the balance you’re carrying.
Then, if you’re using personal cards instead of business cards, you’re putting yourself at a greater risk than a higher interest rate. When you use personal cards for business expenses, you risk piercing the corporate veil, which is the legal separation between you and your business.
This separation is what protects your personal assets if your business faces a liability claim or lawsuit. Commingling finances has caused problems for others. If you commingle and have the incorrect business structure, things can get complicated. Talk to your attorney or CPA to get appropriate guidance here.
How you finance your business directly impacts how much of what you earn you actually get to keep. The decisions you make have a long tail.
But What About 0% Cards and Tax Deductions?
Both are good things to consider, but the math doesn’t always pan out in your favor.
Zero percent introductory APR cards are available primarily to people with excellent credit. They’re a great short-term tool if you can get them. And you’ll want to be sure to use the card only for business expenses.
With some cards, the clock starts ticking the moment you open the account, and on others, it doesn’t start until you make a purchase. The time frame for the 0% APR also varies from a few months to more than a year. And if you’ve not paid the balance off within that time, the rate will reset to a “normal” rate. So, you’ll want to read the fine print to understand how yours works.
Some owners extend their small business financing at 0% APR by transferring balances from one card to another. This works until the promotional offers dry up, your credit utilization starts impacting your credit score, or the business hits a rough quarter at the exact wrong time.
Basically, using this approach is a bet.
Yes, business credit card interest on legitimate business expenses is tax-deductible. But the deduction doesn’t make the credit card debt cheap.
If your tax rate is 25%, a deduction saves you 25 cents on every dollar of interest you pay. You’re still paying for the other 75 cents at whatever rate your card charges.
The Fee I Chose Not to Pay
When I went to set up my business bank account for my first business, the banker I was working with handed me an SBA loan application. As she did, she minced no words and said, “Get it before you need it.”
I decided to ignore her advice because there was a fee of a few hundred dollars to apply. I thought it was silly to have to pay for a loan application when the bank would make money from the loan.
I didn’t talk to anyone about my decision. I figured that my savvy with my personal finances was enough.
I didn’t understand what walking away from that would actually cost.
Several months later, my cash reserves for the business ran out. So, I turned to credit cards. At first, the 0% offers worked for me. But eventually, I had to start paying significantly higher interest on debt that I could have avoided if I had made a different decision about the loan. All of the interest payments I made were also larger than the application fee.
Why So Many Small Business Owners Make Similar Mistakes
I’ve seen four different reasons my clients have struggled with financing their small businesses. My story illustrates two of them.
Paying a Fee to Borrow Feels Backwards
I’m not the only first-time owner who has walked away from an SBA loan application for this reason.
The logic seems solid enough. Why pay the bank for the privilege of making them money? But that fee buys you access to capital at rates that can save you thousands. Refusing it on principle is winning the argument and losing the money.
Nobody Told You What You Didn’t Know (Or You Didn’t Understand Them When They Tried)
The banker offered me the option of the SBA loan and moved on. She didn’t help me to evaluate whether to take it, and honestly, I don’t know if I would have listened to her if she had. Back then, I thought I knew more than she did about how my business would grow.
I didn’t know I needed a strategic advisor to help me make smarter decisions.
I Want to Do This Myself
For some small business owners, their origin story is really important. They want to be able to say they did it all themselves. So financing becomes a question of identity instead of financial positioning.
Before I even started on my entrepreneurial journey, I wanted to be able to say I was self-made, too. There’s something about the American Dream myth that says, of course, we can do whatever we want on our own.
Unfortunately, that’s just not how things work. No one can create business success 100% on their own. If nothing else, you need customers.
The Paperwork Is a Project
Sometimes, even owners who are open to financing avoid it because the application process is onerous. It requires things like years of financials, business plans, and projections. This, in and of itself, is enough to make many pull out the plastic.
But this is short-sighted.
Having Access to Capital Isn’t the Same as Using It Well
I’ve also met clients and other business owners who are comfortable with borrowing and taking out loans. Often, they’re doing it to cover payroll, which isn’t necessarily bad.
The problem happens when they’re doing it month after month after month, despite having revenue coming in. They’re using the financing to hide the problem they have with their clients taking 60, 90, and sometimes 120 days to pay.
So, instead of addressing the root cause, they just deal with their resulting cash flow issues. This is just kicking the can down the road while the problem keeps getting worse.
What Strategic Small Business Financing Really Looks Like
Accessing capital when your business is healthy gives you options you don’t have when you’re operating from a shortage. It can make it easier for you to hire ahead of a growth opportunity. It can help you bridge a slow quarter without touching personal savings or making decisions out of panic.
So, when you’re strategic about financing, you can make timely decisions that support your business’s growth.
Understanding all of this is the easy part. The harder part is seeing your blind spots clearly enough to address them.
Cycling through 0% credit cards and carrying high-interest credit card debt isn’t necessarily wrong. It’s just the best option these owners can see on their own.
Ready to Build a Capital Strategy That Actually Works for You?
If you’re running your business on credit cards and personal savings, let’s find out if we’re a good fit to change that. Schedule a 15-minute call.
About the Author
Karen Finn, PhD is an author and business growth strategist. Download a copy of her book, The Business Growth Plan, to get insight into the low-cost and no-cost strategies she uses with her clients to 2x-3x their revenues.
