Being a small business owner means tackling multiple tasks. Business credit cards levy the burden of many financial responsibilities from time to time. Pending vendor payments, emergency repair costs and a shortage of production funds, you can pay for them all using your trade line of credit.
How about your Friday night dinner with the client or the morning coffee from Starbucks after a late night? Can your business credit card pay for these expenses too? Of course, it can. However, the correct question at this point should be “Should you use your credit card for personal expenses?”
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- 1 When should you use a business credit card?
There many entrepreneurs, who pay for their daily transport, food, beverages and home utilities using their trading cards. You must remember each time you are whipping your card out; you virtually agree to take out a small business loan. It is a revolving line of credit that holds your company at stake when you fail to pay the credit card bill. That card is a convenient and minimal way to package the concept of trade loan and to sell it to the unsuspecting business owner, who cannot wait to use the card at every chance they get.
When should you use a business credit card?
There are smart expenses, and then there are the small accumulating charges that rack up your bill at the end of every month. Sometimes, choosing a business card makes more sense than taking out a small business loan. These scenarios may not be uncommon to you, but let us refresh the list of situations one more time:
Saves you more on APR than a traditional loan
The business credit cards have higher APRs than the regular personal loan amounts, but their APRs are much lower than the personal credit cards. You should always check with the lending institutions for the qualifying terms of a small commerce loan. In case the conditions are unfavorable as compared to that of a business credit card, you should always go for the latter. Several cards have 0% APRs as introductory offers. Do not shy away from taking full advantage of these promotional offers during the initial years of your venture.
Your business does not depend on liquid cash
Some operations do not require liquid cash, and they are the perfect candidates for corporate credit cards. If you need your trading capital in money, you will find it impossible to use a credit card instead. Therefore, it is more of a necessity-based situation. It can also save you the available hard cash for a rainy day.
You can pay the bill within the deadline
You should only use your revolving line of credit when you are sure you can pay on time. Although the interest rates and APRs of a business credit card are lower than personal bank cards, the payment deadlines and penalties are not flexible. Not paying on time can attract lawsuits, penalties and it can harm your credit score significantly. Your delay will accumulate higher interest rates, and the payments will make their way into your firm accounts.
Business experts will never suggest you against using plastic money, but they will always advise you to set up a few rules for your expenses. Following these expense guidelines will help you save more and pay less interest in the oncoming days.
Learn about the risks of using a business credit card
A study shows that using plastic for financing a corporation can decrease the chances of survival of an enterprise. The survival rate drops by 2% every time you spend $1000 on the card. Non-payment results in a deduction of personal credits and it decreases your chances of getting a business loan in the future.
Gather knowledge about the different types of cards out there
A business credit card can carry several offers and benefits, just like personal bank cards. They have higher spending limits and bonus programs for entrepreneurs. Always think ahead. Consider the annual rental, starting bonus and interest rates on a card before you get one. Compare and contrast several card companies offer to find the one that is the best for your business.
Spread the word
Not everyone in the company gets the right to use a business credit card. Set a few ground rules about who gets to use the card and for what purposes. Most importantly, always adhere to these rules for maintaining a tight grip on your trade finances. Bigger enterprises get a “commercial liability,” but small business owners are personally liable for their business line of credit. It is your responsibility to keep track of the expenses on the card and monitor its use by the employees.
Plastic money is convenient, and it has replaced real cash to a significant degree. Experts often recommend the use of business credit cards on a regular basis to maintain credit score and exact the incredible offers, but always be cautious about the kind of expenses and the limit of your card during use. Taking control of your non-cash expenses is the only way to sustain a healthy and long-lived venture.