Most business owners have run into sudden unexpected expenses and could use business credit cards to tide them over. Equipment malfunctions, an abrupt rise orders to be filled, or any number of crises can send daily operations into a tailspin. Fortunately, business credit cards and other business loans can be the insurance that the business owner needs to get back on track fast.
Emergencies are not the only reason to have a business credit card on hand. They can also be helpful with running the day to day operations of the business. In the end, it is the owner of the business who is responsible for making sound decisions that will benefit, and not harm, the bottom line.
This is especially true with regard to financial choices, which is why this article will cover:
How does the owner of a business decide whether a credit card would serve his or her needs? The decision is unique to the business and the owner; overall, business credit cards are used to ensure that credit is available when needed.
Additionally, advantages for their use include:
One other advantage of having a business card on hand is the flexibility of its use. It can be used only for emergencies, if the owner so chooses. The amount of money to be put on the card can be limited; the full credit limit does not have to be reached. The truth is, the majority of transactions, whether business or personal, are performed with credit cards today. Cash is becoming obsolete, especially in business dealings.
Business credit cards are unsecured credit, meaning there is no collateral needed to secure the card. Just like personal credit cards, the borrower is given a credit limit which can be reused as the balance is paid down. The credit cards are often approved based upon the business owner’s credit, so approval may be easier, even for owners with bad credit (although these owners will pay more in interest and fees). Also, the card may help improve the credit rating of the business if it is used responsibly.
So, should a business owner use their personal credit card to run the business? The answer is no, this is not ideal.
There are several reasons why businesses should maintain a separate business line of credit including:
Often, businesses are started up with the use of personal credit such as a home equity loan, cash advance, or home equity line of credit (HELOC). This may initially be the only funding option that is available to the business owner. However, owners should be cautious not to make this a permanent solution to running their business.
Business credit cards are an efficient way to pay for business purchases such as necessary equipment and inventory, for instance. They are also widely used for business travel. As with any credit, the best use is to pay on time (or earlier) each month. Making more than the minimum payment every month will help build good business credit; paying the entire balance off every month is even better.
Too many businesses have fallen into the trap of misusing business credit cards. The three top offenses are:
Credit card abuse can be equally disastrous for businesses as it is for individuals. Therefore, business credit cards should be used responsibly. Protecting the credit rating for the business should be second only to protecting the business.
A good rule of thumb in choosing business credit cards is to apply to companies that the business will accept. This includes major credit card companies like MasterCard, Visa, and American Express. Frequently, the card that is chosen depends on which company approves the application.
To get approved for of business credit cards, business owners must meet the credit criteria of the credit card company. For instance, if the company only approves cards for businesses with a rating over 700, and the credit score of the business is lower, the card will be denied. However, the business may qualify for cards offered to those with bad credit.
Whether a business has good or bad credit, there is an advantage to finding the best credit card for which it will qualify. That means taking into consideration the following:
Choosing business credit cards follows the same process as personal credit cards. For businesses, that entails finding the card company that is the right fit in terms of qualifications for approval and saving as much money on fees, rates, and interest as possible.
Having one, or even two, business credit cards on hand can be beneficial to companies to manage finances. If used in a responsible manner, they can be a ‘go-to’ in emergencies, expedite business transactions, and streamline accounting. Which is why literally millions of businesses worldwide use business credit cards with success on a daily basis.