“Credit Cards and Businesses!”
My Ninong came to visit us from Canada a few years ago, and during one of our lunch get togethers, I overheard a conversation he had with my mom about credit cards. My Ninong you see is a retired corporate executive and is brilliant with money management but was never really a businessman. My mom on the other hand, although an excellent business woman herself, and is a mentor to me in more ways than she knows, believes in cash more than credit and has been very conservative with loans. So the conversation went something like this:
Ninong: “You know, the credit card companies in the Philippines are getting a little too aggressive for me. When I got back a few days ago, I received a phone call from my bank saying that they were giving me a card for free with a ridiculous credit line. It was so big that it scared the hell out if me! So I turned it down.”
Mom: “Yes, the same thing happened to me a few months ago and I also turned them down, I mean, it is scary how much credit they are giving away, I don’t want to be responsible for that kind of money, I mean, I am afraid of what could happen if I lost the card and fail to report it on time, I would be liable for a huge amount.”
So I joined the conversation as I believed in the complete opposite.
Me: “…Well, I definitely understand why both of you feel that way, and I would agree 100% if I was using credit cards as a consumer… But as a businessman, I actually would think twice about turning down a credit line that the bank is willing to offer you for free. In fact, I personally have multiple credit cards right now and I work hard on increasing the spending limits of each of those cards. Because you see in business, it is crucial to have ‘Ready credit’ at a moments notice.”
Both of them looked at me incredulously as if saying, you are out of your mind if you are using credit cards for business purposes.
So I explained further:
“Okay, don’t get me wrong guys, I do not use credit cards to start a business. Using credit cards to fund a start-up business would be extremely risky and definitely not very smart… My purpose for credit cards is to get me out of emergency cash-flow jams when the business is already up and running with a steady stream of income…Every single business on Earth will eventually have a cash-flow problem. Take the case of my first business*, sales were dismal, in fact for the first 8 months of its existence, there was no money coming in and I was pouring in all my savings and income from my job into the business to pay for salaries, rent, electricity, etc. And because I didn’t know how to use my credit cards properly back then, I had to resort to borrowing from loan sharks who would charge me anywhere from 5 to 7% per month just to pay for my overhead. It wasn’t pretty that was for sure. But when I finally learned how to properly use credit cards, that helped me tremendously with my next business ventures”
*I shared the story of my glorious failure and comeback of my first business in my article series titled: Business and the start of a beautiful relationship parts 1 to 3. To read those articles, please go to my blog at www.wealthflowproject.com
Now, at this point, both my Ninong and my Mom were listening intently, so I continued.
“You see, once you figure out how to start a business with positive cash flow, and be profitable from the very beginning, that is the time I take full advantage of my credit cards. Because even if your business has a positive cash flow business model like mine, it will eventually have a cash flow problem down the line, the difference is, this time around the business has actual sales but sometimes, collection delays can will cause you to scramble to generate cash for payroll, or rent or any other business expense. This is where my credit cards come in very, very handy. If I already see a cash flow problem a few weeks from now, I would already start canvassing and calling up my credit card providers and ask how much the rates are for short term loans. And because, I’ve learned to properly manage my credit cards extremely well (with the help of my wife), I can get very affordable cash loans without collateral from my credit cards.”
Ninong: “How much interest do they charge you per month?”
Me: “The lowest interest I’ve ever received is 0.79% fixed interest per month for 12 months and the highest one I ever accepted was 1.25% fixed interest per month for 12 months. Which is way cheaper than those loan sharks would charge. And, to top it off, I didn’t need to provide any collateral, the check was ready in 2 business days, and most of all, it provided me with cash-flow security during the most trying times of the business.”
Ninong: “Well, I definitely see your point Mark, but exorbitant credit lines are just way to risky for me especially since I’m just staying in Manila for a few months. Aren’t you scared of having too much credit at any given time?”
Me: “Credit if used unprofitably is definitely scary, but if used to keep your cash flow healthy, I welcome it with open arms anytime. And believe me Ninong, in the next few years, everything will be about credit. I’m just glad I learned how to use it to my advantage early on because when the time comes where everything will be about credit, I will be one of the few who will be ready.”
And with that, I passed him the stuffed chicken my Mom makes so well, and we had a wonderful lunch.
Stay tuned for the next article where I talk about negative and positive cash-flow businesses.
Mark So is a fervent businessman, Investor and educator. He is the Chairman and CEO of Businessmaker Academy—a business, finance and corporate training center. He is the founder and Chief Forex Trainer of Forex Club Asia, A Trading club of Forex Traders across Asia. He is also the Founder and Chief Trainer of the Philippine Franchise Institute which specializes in training and growing existing Franchise businesses. A sought after speaker for business, investing, You may email your comments and questions to: email@example.com or call the office at 6874445 / 6873416 / 6874645 for a schedule of his seminars