Advice on Business Credit Cards

If you are operating a small or medium business, you need to think about how you will obtain credit. When you are first starting out, it is quite difficult to get going without credit. Even large, established companies use credit for their daily operational costs. But as a smaller, newer company, you have a harder time getting a loan. One increasingly popular option is a business credit card. It seems like a good choice because it can’t be called in by the bank like a business line of credit, but there are some things you should be aware of before you decide to make a credit card your sole source of credit.

First of all, read the rules carefully. One of the biggest reasons that businesses use credit cards is for the rewards systems. The points on big purchases can really add up. But some cards have limits on the amount of points you can earn in a quarter or other limitations that make their rewards less appealing than they seem at first. Do research carefully to determine if a given reward system is really all that it appears to be.
Next, be careful of interest rates. The interest rate on a business credit card might start out at zero for a promotional period of six months to a year, and that’s a great benefit that can really give a business a good start. But most credit cards also come with penalty rates, usually 29 percent, that apply to the card if you miss a payment or otherwise violate the terms. That’s actually quite a high rate that can burden you with massive interest payments. If you accidentally get yourself set up with a penalty rate, consider stopping use on a card. At least ensure that you understand the potential penalty rate you might face before you actually apply for a card, because it can wipe out all the benefits you gained from getting the card in the first place.
In addition to the rates, it’s also important to ensure that the balance on a business credit card does not get too high. It’s easy to lose control of spending with a card, because swiping it or entering the number is far easier than adding a balance to a regular bank loan. So you need to be very careful that you do not run up a balance you will be unable to pay back. It’s quite common for small businesses to spend themselves out of business. It’s a big risk, taking on credit, because you need to be sure that you can really afford the interest. This is particularly true in the early days before the business starts to take off. Early on, a small business needs a lot of spending but won’t start to bring in revenue for a while. That means there is ample opportunity to rack up a balance without the ability to pay it off. Keep track of the spending you make and don’t let it get out of control.
If you are opening multiple cards or lines of credit, keep in mind that performance on one can carry over to the others. For example, if you have a credit card and a line of credit with a different bank, if you miss payments on the card, the bank operating your line of credit might call in the loan early, compounding your problems. This happens because banks can pull your credit report anytime they want. If they see something they do not like, they can penalize you, even if it’s from a different financial instrument. Poor performance on one kind of debt will appear on your credit report and can jeopardize your relationship with your other creditors. The opposite is also true- being a diligent borrower will improve your relationship with every bank that extends you credit or a card. So you can capitalize on good performance in all of your banking relationships at the same time.
Even if you have a zero APR as a promotion, make sure that you pay off the balance each month. First of all, this will build up good habits in your use of the card, so you don’t get blindsided after the promotional period ends. Secondly, you will look good to the bank, so you can request a higher credit limit later on if you want one. Never miss a chance to make a good impression with a bank.
If you keep this advice in mind, you will have your small or medium-sized business up and running with good credit. Make sure to be reasonable in how much credit you use, and you will set yourself up well for the future.

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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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