If you’re a small business owner, you may wonder if using cryptocurrency is wise for your personal or business finances. A Finder.com survey showed that about 23% (59 million) of adult Americans have invested in crypto. And according to Skynova, 32% of US small business owners and top-level executives said they accept crypto as payment.
As crypto gains popularity, consider how it could improve various aspects of your business and help you achieve results. We’ll review tips for using crypto in your venture, whether you’re just getting started or are a seasoned entrepreneur.
What is cryptocurrency?
Crypto is a digital store of value and a medium of exchange that uses blockchain technology to record transactions on a global, decentralized ledger. So, instead of needing a bank or middleman to process payments, buyers and sellers can transact directly using encrypted digital wallets or exchanges.
There are many reasons small businesses might want to own, accept, and pay with crypto. It may help you attract new customers, partners, or employees or even prevent fraud. Another is that crypto may be a good investment or provide you with innovative ways to take out business loans.
Here are five ways to use crypto in your small business for more success.
1. Accepting crypto from customers.
Adding crypto to your list of accepted payment methods offers several advantages, including lower fees. Compared to traditional credit card payments, which typically cost businesses in the range of 2% to 4% per transaction, accepting crypto could reduce your fees to less than 1%.
Crypto payments can’t be charged back or reversed from merchants, unlike credit card payments. And because there isn’t a third party involved, crypto transactions are final, protecting businesses.
Since crypto has become mainstream in many countries, accepting it could help your business grow with international customers. Making your products or services more convenient or safe for a new market could be the ticket to expanding and increasing business revenue.
To accept crypto, you can receive it manually using a digital wallet, using a payment gateway like PayPal, or a crypto payment service such as Coinbase Commerce. While a gateway or service charges a fee, it simplifies the process and allows you to exchange crypto for USD immediately.
2. Taking out a crypto loan
According to the World Economic Forum and the World Bank’s Enterprise Survey, lack of access to financing is one of the biggest obstacles to growth for small and medium-sized enterprises. If you’re searching for alternatives to traditional lending, a crypto loan may be a good financing option.
To get a crypto loan, you must own some amount of it and maintain a certain loan-to-value (LTV) ratio. Instead of selling your digital assets, you can use them as collateral to receive cash or a stable coin.
Your loan amount depends on how much crypto collateral you wish to put up. For instance, if you put up $20,000 worth of crypto and need a 60% LTV, you could receive a $12,000 loan.
However, as with any new financial service, crypto loans come with potential risks. If the value of your collateral dips due to price volatility, you could be required to increase it or pay down the loan. If you can’t meet the lender’s requirement, a portion or all your crypto collateral could get liquidated, depending on the lender.
Before taking out a crypto loan, always do your homework to find a lender with a good reputation and reviews. Watch out for red flags, such as a lender saying they can take ownership of your collateral or dispose of it at their discretion.
Stay away from crypto lenders with a bad track record, such as suspending services without notice, taking legal action against customers, or not fully complying with regulations.
The Digital Asset Advocacy Group, a nonprofit consumer education and protection organization, has many resources on its website, including more red flags when choosing a crypto lender and details on who to contact in each state if a crypto-lending platform has harmed you.
3. Investing in crypto with a retirement account
A clever way to buy and sell crypto that doesn’t trigger capital gains is owning it in a tax-advantaged retirement account, such as an IRA (Individual Retirement Account) or a SEP-IRA (Simplified Employee Pension) for the self-employed.
With a crypto traditional IRA, your contributions are tax-deductible, and you pay ordinary income tax on amounts withdrawn in retirement. Contributions to a crypto Roth IRA are taxable; however, your withdrawals (including the account’s investment growth) are entirely tax-free in retirement.
For 2022, the annual contribution limit for a regular or crypto IRA is $6,000 or $7,000 if you’re over age 50. Anyone with at least as much earned income is eligible for a traditional IRA; however, there are annual income limits to qualify for a Roth IRA.
4. Investing in crypto with a health savings account (HSA).
Using an HSA to save for current and future healthcare expenses gives you the following tax benefits:
- Tax-deductible contributions.
- Tax-free investment growth.
- Tax-free withdrawals (if you spend them on qualified healthcare expenses).
While you typically can’t invest your HSA balance in crypto, self-directed accounts allow it, such as Directed IRA. Note that to qualify for an HSA, there’s no annual income limit, but you must be enrolled in an HSA-eligible health plan.
For 2022, you can contribute up to $3,650 for an individual plan or $7,300 if you have a family health plan. And if you’re over age 55, you can contribute an additional $1,000 per year.
5. Using a no-risk crypto rewards credit card
If you’re not sure you want to accept crypto in your business or invest in it, you can earn crypto using a crypto rewards credit card. That allows you to leverage your personal or business spending to accumulate crypto or points that convert to crypto.
While cards vary, look for ones with no annual fees that allow you to earn an unlimited 1% or more back in crypto on every purchase. That’s an easy, risk-free way to get started with crypto in your business.
How to Protect Your Business and Others
If you’re currently using crypto products or loans in your business and have had an unsatisfactory experience, it’s essential to share your information. Use the following resources to write reviews or complaints that let regulators, consumers, and other entrepreneurs know about any bad actors in the crypto industry: