Easier to obtain than lines of credit, these cards can help the small business owner conserve cash while still buying the equipment and supplies needed to keep the business moving forward. Surveys report that more than 65 percent of small businesses now have credit cards, and this number continues to rise. Of course, not unlike personal credit cards, the same warnings hold true: Business credit cards must be used cautiously and only for the sake of the business.
Although business credit cards typically carry an annual fee, it is usually rather nominal. A number of advantages are evident in such business credit cards, including:
- Higher credit limits. Such cards typically carry credit limits of $50,000 or more, making it much easier to make major business purchases that you would not be able to make using your personal credit card or cash.
- Credit rating boost. Having business credit cards, not misusing them, and making timely payments can help boost your business credit rating quickly. Make sure to do business with suppliers who report your transactions to the credit bureaus.
- Separate business credit. A business credit card stands on its own, meaning your personal credit rating is not reflected in your transactions. In addition, by having a separate credit card for a small business, you no longer have to sort out business and personal transactions when it is time to pay taxes.
- Control on employee spending. A business credit card makes it easier to set limits on spending by employees.
- Business perks. The rewards offered on business credit cards are typically business related and may include discounts on business travel and on shopping at business supply outlets.
Another advantage of a business credit card is that by using it, you are demonstrating the growth of business while promoting it at the same time. Even someone running a home-based business gains more credibility when flashing a business credit card.
As is typically the case with credit cards, some business will benefit greatly from them while others will suffer because of mismanagement and misuse of the cards and the opportunities afforded. For example, you can use the usual 21-day grace period prior to payment in order to maintain more cash on hand. However, if you neglect to pay by the 21st day, you will incur late fees and your business credit rating can suffer. Be very careful regarding cash advances. If possible, avoid using them altogether, since they can cost you more in interest and fees.
You should also shop around and look at the offers from American Express, Visa, MasterCard, and other credit card companies. Compare interest rates, grace periods, special rewards programs, and everything else that is offered. Look at what additional fees, if any, you will need to pay for such privileges. Before completing an application, you should always read the fine print very carefully.
Finally, while it is tempting to fill out every credit card application that arrives in the mail, you should limit yourself to two or three cards. Not unlike with your personal credit rating, too many credit cards and inquiries can show up as a negative on your overall business credit report.