Financing is a common problem for many small businesses. You need money, and you need it now. However, lenders present extended timeframes and so many hoops to jump through. Credit cards are tempting, but is it wise to use them? The answer is gray, not black and white. It can be smart to use credit cards in some situations but not in all.

Examples of Using Credit Cards Wisely for Your Business

Credit cards can be a great asset for short-term purposes. Because the interest rates can be high, it’s best if you have a plan to pay your balance in full each month or within a few months.

Let’s say you find a great deal on business equipment. You use an equipment loan calculator to figure out your monthly payment and go ahead and apply for loans. However, you don’t get approved for the loans or the good price is set to expire before you get loan money. In this type of situation, it should be fine to use credit cards to finance the equipment as long as you’re able to pay the balance soon.

If you are sure you will qualify for a loan that’s just taking a while to process, that could be one way to pay the credit card off. Another is if you already have the funds sitting in your bank (or will have them soon). In fact, many business owners make purchases with credit cards even if they have more than enough cash for purchases. Here’s why.

The Rewards

You can get rewards for each dollar you charge to a credit card. If you already have the money to pay off your balance, rewards are akin to truly free money. You can use the cash back or travel mileage to offset other business expenses.

Building Business Credit

It is better to use business credit cards (rather than personal credit cards) for business use. Business cards build credit for the business. Showing responsible credit use enables your business to qualify for more financing as time goes on. So, you might have enough cash but want to build business credit.

Fortunately, business cards are easier to qualify for than business loans. Business credit cards generally depend on your personal credit history, while business loans require decent collateral, annual revenue, and credit scores.

Transaction Ease

All you have to do is enter numbers or stick your credit card into a receptacle, and you are finished. Using a credit card can be easier than moving bank funds around or writing checks.

Faster and Keeps Cash Intact

Maybe you want to keep some of your cash free for other reasons. Loans take time to apply for. Small Business Administration loans may require up to 90 days, for example, and bank loans can be even longer. Online loans are quicker but typically still take at least a day or two. It’s much faster to use business credit cards. It’s also not a good idea to use up all of your business cash, so keep some in the bank for when the business urgently needs funds.

Examples of Using Credit Cards Unwisely for Your Business

The news with business credit cards is not all good, of course. In some cases, you should not use them. If you are prone to overspending and don’t follow best practices with personal credit, you may want to shy from using business credit cards. Their availability, introductory rate offers, and ease of use make it easy for people to overspend. Here are examples of when using credit cards could be unwise.

You Overspend

Making a lot of charges and paying just the minimum balances could get your business in trouble. You risk getting stuck in a cycle of debt with huge interest rates. Always have a plan to pay off balances before an introductory period ends if you opt for 0 percent annual percentage rates. Another option is to find loans where you can lock into a fixed rate. Please be sure to weigh your options while choosing a loan, and watch your budget as you are spending.

You Need a Large Amount of Money

Suppose you need, say, $1 million, $500,000, or even $100,000. You are probably better off going the loan route. It takes longer but you can get much larger amounts of cash than with a credit card. Loans also mean longer repayment terms. You could get in trouble if you’re supposed to pay back, say, $25,000 on various business credit cards in the next month. The interest charges will skyrocket if you don’t pay them back soon.

You’d Rather Not Risk Personal Assets

If your business cannot pay off the credit card, then card companies may expect you to do so personally (assuming you’re the one who applied for the cards). This could put your personal assets at risk. Your personal credit score is at risk too because some business cards report to credit bureaus.

Business credit cards are best for relatively small charges that you can pay back by the next month. They are a great way to build good business credit, and you can benefit from the rewards.