What Is Credit Card Funding?

What Is Credit Card Funding?

Credit card funding can provide capital to a new business or venture using a credit card. Credit card funding can provide an available source of borrowed funds for start-ups. Investment firms registered with the Securities and Exchange Commission (SEC) do not allow credit card funding for investing, but most cryptocurrency exchanges do.

Key Takeaways

  • Credit card funding can fund a new account, business, or venture.
  • Credit card funding provides an alternative to business owners who may not be able to obtain a traditional loan.
  • The SEC discourages financial investments using credit cards.
  • Cryptocurrency exchanges allow credit card funding for investment.

Small Business Credit Card Funding

It may be difficult for small businesses or new start-ups to obtain capital for inventory or rent. Credit card funding may provide an option if the business owner cannot acquire a loan. While credit card funding can purchase items for a new business, it cannot fund most banking or financial investments.

Credit Cards and Investing

Most licensed Securities and Exchange Commission (SEC) registered investment firms do not allow customers to invest using a credit card. The Securities and Exchange Commission's Office of Investor Education and Advocacy discourages investors from using credit cards to fund their investments due to the risks associated with credit card scams and unauthorized use. However, investors interested in purchasing cryptocurrency through providers like Bitcoin can use credit cards.

The SEC warns that unregistered and unlicensed sellers that request a credit card to purchase a stock, bond, or other interest in a company or investment opportunity may be a scam. 

Establishing Bank Accounts

Certain banks may allow credit card funding to open an account to meet the minimum balance requirements if the card is included. It can be a way for the credit card holder to meet spending minimums to earn a signup bonus or cash back. Credit card holders should review their card agreement to determine whether the card company considers credit card funding a cash advance.

Some institutions that accept electronic funding may not allow credit card funding but may accept funding via debit card, where funds are transferred if they are in the cardholder's account.

How Many Small Businesses Use Credit Cards to Support Their Companies?

The U.S. Small Business Administration (SBA) reports that 46% of all small business owners use personal credit cards to start or operate their businesses.

What Funding Besides Credit Cards and Loans Is Available to Start-Ups?

Besides taking on personal debt financing through loans or credit cards, new small businesses may be able to acquire venture capital or attract an angel investor.

How Does Interest Affect Investments When Using Credit Card Funding?

The interest and fees borrowers pay on credit card purchases might significantly erode any return on their investment. Depending on the type of investment made with a credit card, and how high the interest rate is, investors may lose money.

The Bottom Line

Credit card funding can provide cash for a new business or venture and a funding option for business owners unable to obtain a traditional loan. The SEC discourages individuals from using credit cards to fund financial investments. Most licensed advisors will not accept credit card funding. However, investing in cryptocurrency using credit card funding is allowed on most exchanges.

Article Sources
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  1. Bitcoin. "Buy Bitcoin With a Credit Card or Debit Card."

  2. Financial Investment Regulatory Authority. "Using Your Credit Card To Invest? Think Again."

  3. U.S. Small Business Administration. "10 Stats That Explain Why Business Credit is Important for Small Business."

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