Once you’ve found your wholesale sources, your next hurdle is to figure out how to pay for your purchases. If you have plenty of cash, that’s great, you’re ahead of the game–but not everybody has available resources. The good news is, there are options for financing your wholesale purchases.
The first instinct for many newcomers to the wholesale/retail business is to tap into personal credit cards to bankroll inventory. As a last resort, this is a valid measure, but it should stay firmly in the “last resort” category. If at all possible, it’s always beneficial to separate business credit from personal credit.
The reason isn’t just organizational. First of all, by using separate lines of credit that are strictly dedicated to your business, you can make a cleaner break between your personal and business finances, and will have a clear and legitimate way to justify business expenses when it comes time to prepare your taxes. Commingling personal and business expenses on the same accounts is going to raise eyebrows and red flags over at the IRS.
The second reason is just to maintain good credit. When you start using your personal credit cards to finance your wholesale purchases, your total utilization on your available credit is going to go up. In other words, while using your cards for personal use only, you might have only had a few hundred dollars on an account–and that can quickly go up to a few thousand.
Your utilization rate is determined by the amount of available credit as it relates to actual credit being used. For example, if you have a card with a $5000 limit and have $1000 on it, then you have a utilization rate of 20%. Now here’s why understanding your utilization rate is important–as your utilization rate increases, it becomes more likely that your interest rate will rise, and less likely that you will be offered additional credit in the future. Curiously, this is so, even if you are making payments on time every month. And so if you start buying your wholesale goods on your personal cards, and your utilization rate goes up above 50%, your greater personal credit situation will decline and your FICO score will decrease–again, even if you are paying on time every month. The end result? You have less credit for both business and personal use.
Use your personal card to get started if it’s the only option–but as soon as possible, acquire a business-only card in the name of your business.
Recent Comments