Can You Use Credit Cards to Finance Your Small Business? An Expert Explains How to Use Them Properly — and When Not To.

As a small business owner, you may feel like a modest contributor to the economy, but your impact is anything but small. In fact, small businesses less than a year old create 12% of all new jobs, reinforcing that small businesses of all types are critical to both the economy and job growth.

While your business has the potential to fuel more job creation than your size suggests, you might be feeling the strain of economic pressures that many small businesses face today. Last year saw small business employment decline by 51,200 jobs, and revenues dropped by an average of $11,850 per business, according to the Intuit QuickBooks' Small Business Index Annual Report. With rising interest rates, inflation and fewer financing options, small business owners are looking for ways to keep operations running and maintain cash flow, which can present challenges as they evaluate their options to close the cash flow gap.

Credit cards are the No. 1 source of financing in the U.S.

Historically, small business owners have turned to loans during strong economic times and leaned on credit cards during tougher periods — and that's exactly what we're seeing today. Due to their accessibility, flexibility and ability to address immediate financial needs, credit cards have become a primary source of financing for small businesses like yours.

Credit cards can be especially useful for managing cash flow gaps, unforeseen expenses and short-term financing. However, that reliance has been growing faster than repayments. The data shows that credit card usage has surged since Covid-19, and banks have pulled back on traditional term loans. With fewer funding options available, 1 in 10 small businesses are turning to credit cards as their primary financing tool, relying on them for more than 75% of their monthly expenses.

This raises the question: Are credit cards a reliable way to access financing and manage cash flow appropriately? The truth is, it depends on how you use them. Here are three tips to make sure credit cards are the right financing option for your business and when to use them — or not.

Related: I Thought I Knew Finance — Then I Took Over My Family's Franchise. Here Are The Hard Truths I Learned.

Pay close attention to cash flow

When managed strategically, credit can be a valuable tool for growing a business. But, without a plan, it can also be a potential risk for mounting debt, which can hold you back in the long term.

Understanding how money moves in and out of your business at any given time is the first step in deciding whether leveraging credit makes sense. To do so, track how your business reacts to sales cycles, inventory fluctuations and economic shifts. Understanding when and why your cash flow tightens — whether due to seasonal slowdowns, delayed receivables or unexpected expenses — can help you prepare rather than rely on borrowing. One way to avoid unnecessary debt is by building a financial cushion, such as a three- to six-month cash reserve, so you can handle shortfalls without putting everything on a card.

The more visibility you have into your finances, the better positioned you'll be to use credit cards strategically rather than out of necessity. Digital tools make this process easier, with accounting and financial software ranked as the most valuable tools by small businesses — 95% of small businesses use digital tools to help manage and grow their business. The right accounting and cash flow management software can help you track expenses, automate invoicing and forecast revenue trends. In turn, you'll have a clearer picture of when using a credit card makes sense and when it might lead to more financial strain.

An accountant can serve as a second set of eyes on your finances, helping you make informed decisions about spending, investing and borrowing. Treating your accountant as an advisor, versus just helping with specific financial tasks like taxes can ensure you have the expert advice you need. They can help you avoid overextending on credit and provide expert guidance on managing your cash flow.

Beyond day-to-day financial oversight, working with a financial expert provides greater visibility into your business's overall health and can even improve your chances of securing additional funding. What's more, they can help you track and reconcile your credit card transactions, ensuring your balances stay manageable and aligned with your financial goals.

Related: How to Leverage Credit Cards for Business Growth (the Right Way)

Assess financing options

Credit cards are one of the easiest financing options to access, but that doesn't always mean they're the right choice for your particular business needs. They work best to cover immediate expenses like travel, inventory purchases or one-off costs. But if you're hoping to make a larger investment — like opening a second location, upgrading equipment or hiring a new team member — a small business loan is smarter to access lower interest rates and structured repayment terms, making them more sustainable for long-term growth.

I recently spoke with Kate Pawlowski of Done & Done Home, who shared some useful insights on how she evaluates her financing options. She told me that while they still use credit cards in a pinch, they prefer term loans for growth-related investments, like hiring or launching something new, because the repayment feels more manageable with better interest rates. In fact, she said that she's noticed that the type of expenses she can put on credit cards often don't always have a meaningful impact on her business. The type of expenses that lead her business to growth, for example, is an expense like payroll, which can't be solved with credit cards.

If cash flow is unpredictable, consider a flexible financing solution that can help without adding high-interest debt to your balance sheet. Take the time to evaluate your options and be choosy about your lending partner. Shop around to find the best lending rates and repayment terms that align with your business needs.

A strong credit relationship can give small businesses the upper hand they need during turbulent times, but only when borrowing decisions are made strategically. Businesses that have the ability to access diverse sources of capital and loan products will be able to balance their options and make the best financing decision for their spending scenario. Your business is essential to the economy's future, and securing the right financing will help sustain your lasting impact.