Over-using credit cards can lead to financial disaster. Alternatively, careful use of credit cards can jump-start a successful real estate investment program. Under what circumstances should you use credit cards to fund real estate purchases? When should you leave your credit cards alone?

Perhaps I should tell you the story of my first home purchase. I purchased my first piece of real estate in Chicago during the late 1970s. At the time, the city was in the midst of a relatively new real estate phenomenon. Real estate developers and investors were feverishly purchasing large and mid-size apartment buildings, renovating them and converting them to condominiums. I had recently arrived in Chicago from college to start my first job. Arriving at the beginning of this condominium craze, I was immediately attracted to what appeared to be an excellent ground-floor opportunity. Houses in the Chicago area were well beyond my means, but the cheaper two-bedroom condos were within reach.

While I was otherwise qualified to purchase a very nice condominium in a turn-around Chicago neighborhood, what I did not have was money for a down-payment. I stayed awake at night trying to envision a way to pull together what was needed. An older buddy at work told me the story of how he purchased his first house using credit cards. This information was just what I needed to put together my first down payment. I used my only credit card and one that my parents had to put my plan into action.

The plan worked well for me because: my credit was very good at the time and drawing down the maximum under my card did not dissuade the mortgage lender; I had full access to my card and was able to tap my parents’ card; I had a stable job and earned enough to service the credit card debt, the mortgage loan, and still be able to repay my parents within a year; and lastly, I am a bit of a risk taker, and fortunately the risk paid off.

Using credit cards as a tool to help finance real estate can be useful. Credit cards are convenient, versatile forms of financing. Usually, you can borrow and re-borrow up to the cash advance limit as needed. Finally, you have already been approved to use them.

There are, however, some big negatives.

The repayment requirements are fairly stiff. Most credit cards require repayment of the outstanding balance within as little as 42 months. This short time frame may not fit your cash flow circumstances.

Another negative is that high card balances will negatively impact your credit rating. If you have great credit and you can afford the credit card payments, it might be worth taking this risk to buy good real estate.

Using credit cards and other consumer credit can be addictive. If you have little self-discipline in this area, it is probably best not to use your cards for real estate. You might be better served by ridding yourself of credit cards altogether.

Lastly, the interest rates charged by the credit card companies are relatively high. Rates can range from 12% to well over 18% per year. These high rates will eat into your real estate gains.

Given the advantages and disadvantages, do credit cards make a good choice for financing real estate investments? This method certainly is not an ideal one because of its high risk. It would not be my first choice. I would tap other assets like life insurance cash value or money from a 401-K plan ahead of using credit card debt.

I would only recommend this financing method as a short-term arrangement, if you have run out of other alternatives. Additionally, it probably makes little sense unless: you have a stable job; you can afford to service the credit card debt; you can afford the real estate mortgage and can manage the related real estate expenses; and you will still have money left over to live fairly comfortably.

There are lots of ways your business will improve once you start accepting credit cards as a valid form of payment. Let’s take a look at three of the most major improvements you’re likely to notice.

Increase Your Customer Base

Customers like credit cards for a number of reasons. Especially in recent years, more and more men and women have turned to credit cards to make a wide range of purchases.

While once these cards were reserved primarily for large, expensive purchases, today’s consumers use them for even small daily purchases, like a cup of coffee from the local coffeehouse, and everyday expenses such as groceries and gasoline.

With so many consumers reaching for plastic when it’s time to make any type of purchase, using credit cards ahs become second nature. Appealing to this large group of consumers can go a long way toward helping you grow a big, healthy customer base. The reasons why customers are using cards more and more are varied.

Here are a few:

Flexibility

One of the major advantages of these cards for consumers today is that they allow a buyer to spread out payments over a period of time. As a result, buyers can afford to make larger, more expensive purchases than they could with cash.

Buyers appreciate the ability to choose whether to pay the minimum amount due, or to pay the balance in full, based on their budget for any given month. And, as the card balance is paid down, consumers know they will have a replenished amount of cash on hand to use as needed, for both unexpected and planned purchases.

Convenience

Credit cards are less bulky to carry than cash, and they are les restrictive than cash, eliminating the need to carefully preplan shopping trips to ensure they have enough cash on hand to make the purchases they want.

Consumers also know that, with these cards, if they see an item they had not anticipated buying during a shopping trip, they are not limited by a set amount of cash in their wallet or purse, adding an extra level of buying power and freedom.

Credit cards are great for travel and for buying online from international dealers, since they perform currency conversion automatically. Speaking of online purchases, this is where credit cards really shine, with more than 90 percent of online shoppers reporting they only use credit cards to make purchases while surfing.

Security

If a credit card is lost or stolen, card holders can pick up a phone and report the incident, have a new card issued, and avoid paying for nay purchases made once the card is reported. With cash, once it’s lost of stolen, it’s gone for good.

Credit card issuers also offer consumers added security by providing a well established dispute process, which goes a long way toward helping consumers feel safe and secure when making purchases, especially online.

Many cards today also offer extended warranties on products purchased using the card, an especially important consideration with today’s popular electronics products.

Perks

With competition among credit card issuers at an all-time high, many card companies have begun issuing bonuses to card holders who use the cards, a promotion that has proved to be exceptionally popular among consumers today. The more they use their cards, the more bonuses they can earn, including merchandise, hotel stays, cash, and more.

Directly as a result of these programs, the number of credit card users using their cards on a regular basis for all types of purchases has increased dramatically. Bonus for business owners: customers feel great about earning reward when they shop with you – yet those rewards cost you nothing.

Increase Your Profits

Of course, with a larger customer base, your profits are sure to grow. But there are other reasons to expect an increase in your bottom line:

Consumers who use credit cards tend to make more expensive purchases than cash buyers, tend to shop more frequently, and tend to be repeat buyers with a greater degree of loyalty than cash buyers.
Credit card users tend to buy more costly single items, which helps improve inventory turnover.
Credit card users are much more likely to make impulse purchases than cash buyers, and those purchases are of a significantly higher value than those made by cash buyers.

Improve your cash flow

Unlike checks, which can take up to a week to clear, the proceeds from these card sales are deposited into your business account at the end of business each day.

So, you say you’ve got a small business and you’re looking for a credit instrument that could tailor itself to your business requirements? Well, your search ends here. Small business credit cards fit right in, helping you separate business and personal expenses.

A study by the Tower Group reports that two out of three small businesses use a small business credit
card for purchasing and financing. So why are small business credit cards so prevalent? Small business credit cards offer small businesses a crucial edge allowing small business owners to expand or limit the growth of their business, as needed, providing the flexibility necessary to match their company’s growth needs.

Small Business Credit Card Edge

Help with Your Cash Flow: The best use of borrowed finances is to assist with month to month cash flow. Small business credit cards help you get the much needed credit to help your business grow while providing a margin of safety for your cash flow needs.

Maintaining Independent Accounts: Mixing your personal and business transaction accounts could lead to poor money management and potential tax problems. With a small business credit card, you’ll be able to maintain separate accounts on your personal card.

Help Balancing Your Books: This one is thrown in for free. With your card company maintaining an ongoing transaction record, you will have a convenient record of all transaction items that can be reconciled at tax time. Simply have the credit card company provide you an itemized list of all purchases made using their credit card and you’ll have some built-in transparency on all of your spending activities and financial accounts.

Build Your Credit Limit: Small businesses looking to expand need capital. You card provides your business with an opportunity to build your credit limit with consistent use and repayment over time. Access to more capital offers financial muscle to help grow the business, providing larger income opportunities for the small business owner.

Pre-Set Employee Spending Limits: For businesses wanting to keep a tight watch over their finances, these cards usually offer preset spending limits for employees, providing an excellent check and balance system for all your company expenditures.

Take Advantage of Special Offers: The competitive market has forced credit card companies to throw in special discounts and rewards programs. By examining the travel and entertainment requirements of your company, you will be able to grab offers that can help reduce your expenses through the use of reward point systems.

Learning how to use credit cards to the best of your ability can be useful, as you can usually get some pretty neat incentives when using a business credit card correctly. For example, once you learn how to use card cash advances for expenses, you can tap into what is essentially a business loan any time you have expenses that need to be paid for, but you do not have the cash to make it happen. Businesses regularly need to be able to pull money from thin air in order to make important purchases, and learning how to use business cash advances for expenses will make it easier for your business to make the expenditures that it needs without having to apply for additional loans from banks or lending institutions as needed.

There are a number of different benefits associated with using advances to tackle expenses. Cash advances are like miniature loans that allow users to get a little bit of extra money for surprise expenses and other emergencies. They are especially popular among regular consumers, who sometimes run into unexpected money troubles. Businesses are also capable of benefiting from learning how to use business card cash advances for expenses, however, because sometimes businesses run into unexpected expenses as well. When a business runs into an expense that they were not expecting, sometimes their options are limited regarding how to deal with the extra unexpected expenditure. This is where these advances come in. Most businesses have cards, and many of these offer the option of cash advances for those who know how to use them.

If you are wondering how to use business credit card cash advances for expenses, think about it this way: An advance is an incentive that many credit cards offer, and business credit cards are no exception. Taking out a cash advance is not like using your credit card normally, but rather involves pulling cash out of your credit card in the form of a loan. What this does, is it makes it possible for you to pay for expenses with cash rather than with the credit. There are different rules and requirements regarding cash advances than normal credit transactions, though, so while using card cash advances for expenses can be beneficial, it is only really going to be useful if you understand how they work, and how you can use them to your benefit without putting yourself into business debt. Consumer debt is bad enough, but putting your business in debt with companies can be even more harmful, so you need to protect yourself by knowing the ropes when it comes to using cards, and using advances for the purpose of paying for expenses.