The Benefits of Credit Card Funding

By Odysseas Papadimitriou

Reposted from Mashable

Thinking of using your credit card to finance your startup? For some entrepreneurs, it’s the only way to get their new business off the ground. Still, it comes with plenty of risk.

The Benefits of Credit Card Funding

• The ability to retain maximum equity:  People willing to take the risks associated with launching a startup generally believe that they have a potentially very lucrative idea on their hands. The further you can take your company without outside help, the more of your company you can keep for yourself and the less oversight you’ll have to deal with.

• 0% offers:  The ubiquity of low interest rates has made it common practice for banks to offer extremely attractive packages. The ability to escape interest for more than a year on either upcoming purchases or funding expenses already incurred would certainly help your company’s bottom line. The best offer currently available is the No Balance Transfer Fee Slate Card from Chase, which offers 0% on purchases and balance transfers for 15 months and does not charge a balance transfer fee (most cards charge 3%).

• Lack of collateral:  If you go to a bank and ask for a business loan or a business line of credit, they will want collateral.  If you want to bring on investors, they’ll want equity.  Credit cards, on the other hand, are unsecured.

The Cons of Credit Card Funding

• No separation between business and personal:  When you use a credit card to fund a business venture, the distinction between your business and personal finances largely disappears.  This is important for three reasons: 

1. It presents the possibility for personal credit score damage: Startups are inherently risky, and when you use a credit card to fund one, you are gambling with your personal credit score.
2. You are personally at risk for a lawsuit: If credit card debt proves to be the downfall of your company, debt collectors will likely be able to come after both your company and your personal income/assets to recoup what you owe.
3. Credit cards might be unattainable:The fact that business credit card underwriting has more to do with your personal credit standing than that of your business might help you get a better credit card, but it could also have the opposite effect.  Past personal credit problems could keep you from getting a credit card that will truly help you grow your business.

• Potentially low limits: Because credit cards are unsecured, they generally provide lower spending limits than secured alternatives.  Sure, you could get up to tens of thousands of dollars to play with, but there is usually an invisible ceiling around the $50,000 mark.

• Overextension:  The potential to spend more than you can afford to pay back is not a negative unique to credit cards.  Misuse of any small business funding vehicle can put you in the hole, which is why you should handle them with extreme care.

Ultimately, regardless of the funding method you decide upon, simply throwing money at a startup does not guarantee eventual success, Papadimitriou said. “Efficient use of this money as well as a lot of hard work and a little bit of luck are also essential,” he said.

Get ready For the Post-Christmas Cash Flow drought….7 ways to stay ahead!

The global financial crisis is squeezing credit and bank overdrafts and trade payments have been slowing. Therefore, small businesses should support themselves for an economic slowdown in the wake of chaos in international finance markets and a decrease in the value of the Australian dollar. They should be keeping a close watch on cash flow, considering the most appropriate finance options and improving administration processes. Here are some helpful tips to help your business survive and thrive in challenging market conditions!

1.       Get Organised - Keep summaries of all purchase and sales invoices and petty cash dockets. Importantly, keep your bank statements safe as they are a record of your payments and receipts.

2.       Always check the credit status of a new customer - Risks must not be underestimated in the eagerness of taking on new business. Credit checks can be done quickly and are relatively inexpensive.

3.       Chase overdue accounts regularly - take prompt action to follow up overdue accounts by telephone and check customers whether they have received invoices.

4.       Look for more flexible funding options – why not look into Debtor Finance or a line of credit.

5.       Review your suppliers - review the prices of all your suppliers are charging you. Are you too loyal to your suppliers for the wrong reasons? Think of the effect of 10% reduction in cost on your profits!

6.       Dusts off your business plan- try to reconstruct a winning business plan in 2012. Keep an electronic copy to make sure changes are easier to track.

7.       Call in a business consultant – A dedicated financial consultant can help you plan effectively and take advantage of opportunities on the horizon. If you would like more information on Business Consulting contact James Solomons on (02) 98683900 or james@elitefinance.com.au. 

Getting Credit Card Debt Under Control

First things first. To get your credit card debt under control you require a realistic assessment of your income and expenses. There are no if's, but's or maybe's about it. If you are consistently spending more then you earn it is time to rectify the situation.

Budget
To get your credit card spending under control you need to build a debt control strategy that will lead you to becoming debt free or at least reduce your burden. You need to know how much your total debt is and how long it will take you to repay that debt at your current payment rate. By developing a budget that enables you to track your income and expenses, you can then begin to cut unnecessary expenses and use more of your income to pay off your debts. Simple steps such as allocating a set amount per week to pay off your debt will allow you to get it under control faster. It is important to be realistic with your goals and aim to get your debt under control as soon as possible.

Consolidate
If you are paying off multiple cards at varying interest rates you are more then likely paying more interest then necessary. In this case it would be important to consider a debt consolidation loan. By consolidating your debts you simplify your finances and place all of your debt together into the one account with a fixed interest rate. The proceeds from the loan are used to pay back your other creditors and then you make monthly payments back to the loan consolidator. Usually these loans have much more competitive rates then the purcahse interest rate charged by credit card providers. If you have multiple unsecured debts, you are probably paying far too much in interest. If you are overwhelmed by unsecured debt (such as credit card debt or other unsecured loans), consolidating these unsecured financial obligations has many benefits, including saving you thousands of dollars in the long-term, reducing your total monthly payments, helping you become debt free faster, and improving your credit rating.

One of the most important aspects of debt management is understanding how you got into debt in the first place. If your debts were a result of spending beyond your means, you must modify your budget to avoid this situation in the future. Controlling debt requires self discipline, restraint, and planning. You must address the reasons that landed you in the situation in the first place. No plan for getting out of debt will ever succeed if you continue along the same path. So take action now!

If credit card debt struggles are keeping you up at night it is important that you get them under control now! Speak to your bank or credit provider about how you can get your debt control back on track.

Creating a passive income stream

Passive income comes in many shapes and forms. There are thousands of ways that people have created automatic streams of income, and more are being created all the time.

All sources fall into one of two types of passive income; Investing Passive Income and Business Passive Income. Out of these two primary vehicles, business and investing, an unlimited number of possibilities arise. Mastering just one area and building a portfolio of investments can help you reach your financial and lifestyle goals! This article will focus on how to build passive investment income.
A passive investment may include both a retail financial product and other managed investments where the activities do not constitute the carrying on of a business. Unlike active investors, passive investors buy a security and typically don't actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable.
There are many arenas of investing that can be used to generate passive income. Stocks, bonds, money markets, managed funds, rental properties and other financial investments can be used to generate income. There a wide variety of products available with differing levels of risk. It is important that before making any investment decisions, that you contact your financial advisor to analyse your current financial situation and develop an appropriate strategy. With the right strategy you could be on your way to building multiple streams of income!

Tax Benefits 
There are also number of tax benefits that relate to passive investment. A number of deductions can be claimed on your tax return such as interest paid on the loan to fund your investment.  With respect to rental properties, you can also claim repairs and maintenance of, rates and taxes, insurance, agent's fees, travel to and from the property to facilitate repairs, and buildings depreciation. Tax deductions can also be claimed as a result of negative gearing, where the costs of keeping the investment instruments exceed the income gained from it.
Owning rental properties can be a great way to put your money into something that will pay you regularly for many years. Unfortunately many people attempt to get into rental real estate they end up spending all of their time managing, maintaining, and overlooking their properties! This is not passive income. If you are working around the clock to maintain your rental properties, you may be earning money but it is requiring your time! Passive income means automation!

Building a passive income is a vital part of wealth creation and an important aspect of balancing risk. After all, wouldn't you rather that your money work for you?

For a more comprehensive analysis of your financial situation and for a strategy to build passive income please contact our head financial planner Christine Hallowes CFP on (02) 9868 3900 or email her at christine@elitefinance.com.au.
The ATO has provided comprehensive guideline on rental property deduction. For more information, please visit http://www.ato.gov.au/corporate/content.aspx?doc=/content/00282530.htm

Thinking of applying for a personal loan? Here are some valuable tips!

If you are thinking of borrowing money to buy a car, boat, for debt consolidation, home repairs, medical bills or anything else for that matter, here are some red hot tips to make the process much easier!

1. Be honest in your loan application
The process of entering your personal and financial details should not take more than 15 minutes to complete online. Being honest in your application, explaining things like why you are applying for a loan or existing debt considerations are essential for your bank to offer you a loan option that best suits your circumstances. There are an increasing variety of different types of personal credit available; car loans, commercial loans, leases, home equity loans, are just some of the examples. With complex credit rating analysis tools at a financial instituion's disposal - honesty is the best policy!

2. Have the right information when applying
Documents typically include personal identification items (i.e. photo ID like a Driver's licence or passport), rates notices, and employment wage pay slips or most recent Notice of Assessment. Further information to have handy include copies of recent bank statement and other loan accounts. These are often essential when applying for higher value personal loans. It is important that you confirm with the lender what documents you will need when applying or before attending to the interview.

3. Try lenders with whom you are a regular customer
Take advantage of the human factor. Being a familiar face or regular customer may mean you are offered a better rate. However, keep lenders competitive by shopping around for better value if your primary lender is not willing to play ball!

4. Know what interest rate applies
This advice seems simple enough yet all too often consumers get caught out with introductory rate discounts! Always be sure you know what interest rate applies over the complete term of your loan. Lenders may often ‘sell’ you their finance packages by quoting the monthly repayments only. This may disguise a high interest rate, so be certain that you know your ongoing obligations.

5. Know how much will be your repayments
Most personal loans require a repayment each month with most allowing you to repay weekly, fortnightly or on an ad hoc basis. Your repayment amount will be calculated by your loan provider and it will be depend on the interest rate, fees and term of your loan. The shorter the loan period the less the amount of interest charged will be, but the higher the repayment amount.

6. Know about the fees on your loan
If no fees are charged then the interest rate might be a little bit higher than a comparable loan from another provider. Most loan providers will also charge fees to end the loan early, for account keeping on a monthly basis or for making any extra repayments in general. Make sure you know what fees will or can be charged before committing to a loan. If you have extra funds available and are considering paying out your loan early, make sure you check before doing so as it may be more beneficial to hold off and only pay the required amount.

For a great personal loan comparison tool visit: www.ratecity.com.au