Did you know that the average credit card interest rate is almost 23%? Some charge as much as a 36% APR (annual percentage rate). In contrast, the variable rate for an SBA loan this year is around 12%.  This means your interest will be about double if you use your cards as a source of credit.

You undoubtedly intend to pay off the balance every month when you pay for merchandise with a card. But roughly half of all Americans currently carry credit card debt, and that is probably also true of many of us who are using credit cards to fund inventory.

A recent survey by J. D. Powers showed that struggling businesses are heavy users of credit cards, and are twice as likely to fail to pay their monthly balance in full compared to more financially stable businesses. Revolving credit card debt may be a sign of poor financial health for your store.

It’s become common for our vendors to encourage us to pay for inventory using a credit card. This saves them from having to offer net 30 terms. The cost of issuing invoices and tracking checks is taken away, along with the problem of late or missing payments. This is of course an especially welcome development for small companies and makers.

The biggest increase in credit card use comes from the percentage of orders being written on Faire, which ties all its payments to whatever credit card a shop has on file. Faire recently announced that their expected GMV (gross merchandise value) for 2025 will be almost $3 billion. That’s a huge number for Faire – and for the credit card companies. Faire’s net 60 terms make it easy for retailers to put off thinking about the fact that the invoices posted by Faire do eventually come due. That can come as a shock without a payment plan.

In order to avoid being overwhelmed by credit card debt, it’s important to track your purchases and how much will come due each month.  Compare this amount with your projected sales to generate a cash flow budget.  Eventually you should be able to align your spending with the income that will be coming into your store.

If it looks like you won’t be able to pay off your credit card bill each month, it’s time to look into outside financing. While it may be difficult to get a bank loan, this is preferable to endangering the future of your business by taking on credit card debt. Make an appointment with your local SBA or bank to discuss your situation. One solution might be a line of credit that you can draw on when you need it, paying back the amount in full when you can. That is bound to be at a lower rate than you’ll get from Visa, AmEx or MasterCard.

Happy Retailing,
Carol “Orange” Schroeder