Today’s guest post comes from Meredith Wood, the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Specializing in financial advice for small business owners, Meredith is a current and past contributor to Yahoo!, Amex OPEN Forum, Fox Business, SCORE, AllBusiness and more.
It might be strange to see yourself this way, but as an Uber or Lyft driver, you’re operating a small business. Whether you’re driving full-time for Lyft or Uber, or on the side to make a little extra cash, you’re making business decisions all of the time—even if from the driver’s seat of a car.
And those choices are big. You need to decide whether you should remain a sole proprietor or incorporate to protect yourself financially; if you should buy your car or lease one; what kind of car insurance you might need; and plenty of other day-to-day considerations.
You also might come up against a period during which you’ll need more cash than you have at any given moment. And cash flow issues are what makes your rideshare operation just like any other small business. You have to balance the costs of running your company while still trying to break even financially.
You might be looking at purchasing, leasing, or renting a new vehicle. Or maybe you’re trying to pay off the financing you have for a car you already drive. Plus, we all know that rideshare profits are declining, which doesn’t make matters any easier.
Most bank loans you flat-out won’t be eligible for without consistent revenue or substantial time in business. And some rideshare companies, such as Uber, are doing away with their own financing programs for drivers. So, what’s a driver to do?
A Business Line of Credit Is Your Best Option for Big Cash-Flow Needs
Thankfully, there’s another option for big purchases: the business line of credit. A line of credit blends the financial heft of a bank loan with the convenience of a credit card.
Similar to when you apply for a traditional term loan from a bank, you work with a lender to borrow up to a certain amount. Once you’re approved, you can draw from those funds at any time. The best thing about the business line of credit is that you don’t have to use all of the money you’re approved for—and you only have to pay interest on the amount that you’ve drawn.
So, if you’ve been approved for $100,000, but only need $25,000, you don’t have to worry about interest payments on the remaining $75,000. That’s one of the ways it’s very different from a traditional term loan.
If you use any kind of credit card, you can think of using a line of credit much in the same way. But it’s a better option for bigger purchases that you likely wouldn’t be able to put on a credit card because of your credit limit, or since the interest rate on a credit card is too high to carry a balance. Not only are interest rates on business lines of credit generally lower than credit card rates, but you’ll have the ability have access to cash, too.
How a Business Credit Card Can Help You in Unexpected Ways
Say, though, that a business line of credit just seems like a little too… much for what you’re looking for. But you still have expenses that you need to take care of in a strategic way, and you want a good tool to help with cash flow. In that case, a business credit card can help you out more than you think.
In the same way that a business line of credit comes in handy for big purchases, a business credit card will, too, when used smartly for other needs.
For instance, you can apply for a 0% introductory APR business credit card, which will allow you to carry a balance for a period of time without paying interest on your purchases. Some cards have intro periods of a year—sometimes even more—before their variable APR kicks in. That gives you time to purchase what you need to help your rideshare business thrive, without the pressure to pay back right away.
The other important thing about business credit cards is they help you separate your rideshare business finances—regardless of whether it’s a full-time gig or a side-hustle—from your personal ones. This helps keep your personal credit safe, which is important in this ever-changing landscape for drivers. You can invest in your business safely, without totally jeopardizing your personal credit score.
The Right Kind of Financing Will Help You Build Your Business
Before you go running to apply for a business line of credit, have a strong plan of what you need the money for and exactly how you’re intending to use it. Make sure you intimately know your own personal financial situation, and the ins-and-outs of your business finances, too. Every kind of small business loan—credit cards included—comes with its own advantages and pitfalls.
By choosing the right kind of credit product, your rideshare small business is going to benefit. You’ll be able to cover your daily finances without stressing about how many rides you’ve put in the books, or about that ill-timed flat tire during an otherwise jam-packed day. And so long as you’re good about repaying your debts, you can use a line of credit to your advantage as you focus on hitting the road and collecting five-star ratings.
Have you used financing to purchase a vehicle for rideshare driving? Let us know about your experience by dropping a comment below!