I started my tiny business with $200, and I didn’t want to go into any debt. Everything I made in the first few months rolled back into the business to help it grow.
I didn’t know at the time, but I apparently had been using what Zeev Farbman, CEO and co-founder of Lightricks, calls “The Bakery Model.” In essence:
You make a bagel, sell the bagel, buy ingredients to make more bagels, sell those bagels and on and on you go. (source)
I think most people who sell for profit on a platform like eBay use this model naturally. Different types of products and services might require some kind of outside funding. But in the case of the Denym Dystryct, I was using an existing and high-traffic marketplace platform that made it simple for me to simply acquire inventory with the limited funds I had on hand and start selling.
In early 2015, however, I needed some printer toner, storage bins to safely store my inventory, and a few other things to make my tiny business run more efficently. I had cash from sales in my PayPal account at the time, but it would take at least a few days for it to transfer to my bank, and I had wanted to take advantage of some promotional prices at the time. So, I used my credit card. And at the end of the month, I paid it off.
That’s when I started to see that credit cards don’t have to be evil if they are used properly. In fact, they could be really beneficial to a tiny business.
Credit cards are easier to get than business loans.
Anyone who has tried to get a loan for anything recently knows that it’s a pain in the eye. Even if you have excellent credit. I was also admittedly too lazy to go even apply for one.
But I didn’t need thousands of dollars. I just needed a few hundred. So, I applied online for a credit card that I could use solely for tiny business purchases.
Fortunately, I have excellent credit, so I was approved in seconds and I got my new card in the mail the following week. Way less painful than begging a bank for a loan.
Credit cards can help buy equipment and build inventory.
As my sales grew, I needed to have enough stock on hand to fill orders, and I had to make sure that my equipment was in working order. Otherwise, I could lose orders and momentum (eBay is a huge marketplace, and if I didn’t have what someone wanted at the time, he or she could easily find another seller).
When I increased my inventory by a manageable amount using my credit card, I was able to increase my store’s offerings. My sales went up.
Credit card benefits can be (gasp) beneficial.
The credit card I use for my tiny business purchases has cash back benefits. I prefer cash back, and I use it towards my balance when enough points have accumulated. There are a lot of cards with different benefits out there, and sites like CreditCard.com can help you figure out which one works best for you if you need one.
It is important to note, however that credit card benefits are just that—BENEFITS. The cash back is pennies to the dollar. And while getting it is a perk, it doesn’t excuse the fact that I have to still pay back what I borrowed. So, I only use it when I know I can pay it off fast. If I can’t, I have to wait or figure something else out.
Credit cards can help track business expenses.
I still keep receipts from my tiny business purchases, but it’s good to know that I have a record of those same purchases on my credit card statement as a back up. Having a record of all my purchases comes in super handy during tax season. And some credit cards can put your spending into pretty little pie charts online to show where you’re spending the most (i.e., stores, gasoline, cellphone bill, etc.). That way, you can adjust your spending accordingly if you need to.
Credit card companies can help dispute charges.
A few months ago, I bought a lot containing 13 pairs of jeans from a liquidation auction site. According to the photos and the description, I understood that some of the jeans would not be sellable.
But if at least half of them were in good condition, I could still turn a decent profit on them. When I got the lot, however, I was severely disappointed. Nearly all the jeans had some significant damage, such as broken zippers, holes in the seats, broken belt loops—stuff that I would never intentionally list in my store. When I contacted the liquidation auction site with photos of the damaged jeans and asked for a refund, they basically said, “Nope. Sucks for you.”
So, I contacted my credit card company, told them what had happened, and they started looking into it. During that time, they put a hold on the amount I had paid for the lot and the shipping, which meant I didn’t have to accumulate any interest on that amount while they were doing their thing. A couple weeks later, my credit card company contacted me back and said they finished their investigation and returned my money in full. (Win!)
Suffice it to say, I won’t be doing business with that liquidation auction site again. Or probably any liquidation auction site ever. But that was the first time I had ever contacted a credit card company to dispute a charge, and it’s good to know that I can do it again if I have to (hopefully I won’t, though).
Credit cards are not evil if you treat them with respect.
After I graduated from college, I had an uncomfortable amount of credit card debt that took me a few years to pay off. After that, I didn’t carry a credit card balance again for a while.
I started using cards again earlier this year for my tiny business, but with the understanding that I have to use them wisely. That means only buying what I really need for my tiny business and nothing else. It also means paying off balances fast so I don’t have to pay a lot in interest.
So that is my experience with using credit cards with my tiny business so far. Do you have any other advice to add?