When to Use Credit Cards

This article was written by Pam Newman of Entrepreneur.com. Pam is Entrepreneur.com's "Financial Management" columnist.

You need money -- and fast. Is there ever a good time to use credit cards for your business? There are many different perspectives on the subject, as well as other options for obtaining smaller amounts of money in the short term.

Of course, credit cards aren't necessarily good or bad; it just depends on how you use them.

As you probably know, there are times in business when you're low on cash and have to decide the best way to get money quickly. Should you personally invest in the business, get a loan from a bank or other third party, or use your credit card?

These are all viable and appropriate options, depending on the situation. So let's explore the options.

Using personal funds can be the least costly approach, but you want to make sure you don't drain your cash fund completely. If you use your personal savings, you can account for this as a loan to the business or an equity investment.

As a loan, the business will pay you back the principal that you loaned plus interest. In essence, you're lending to your business, and you receive the interest income personally. The business gets to expense the interest.

Borrowing funds from a third party is a very common option when you're purchasing assets. Lenders tend to shy away from loaning money for operating expenses because once the expenses are paid, there's nothing to show against the liability on the balance sheet. You've increased your debt without an accompanying asset.

Operating notes or lines of credit can be a smart option for established businesses. Ideally, you should use these only short term when you need to pay your bills today and won't receive payment from your customers for a short time period.

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