Pros And Cons Of Using Business Credit Cards
Business credit cards continue to be the number one source of funding for small businesses. This is with good reason since small business owners can easily have access to funds to meet their business needs. In order for business credit cards to be truly beneficial they must be managed wisely if the business owner does not want to be stuck using their business profits to pay off costly interest charges.
There are marked differences between small business credit cards and a loan. They are outlined below.
Business owners can expect the following advantages with business credit cards:
Easier To Qualify For Than Traditional Loans: Many business owners turn to business credit cards after failing to qualify repeatedly for traditional loans. The requirements for getting a business credit card is a lot less stringent and this appeals to business owners who might be in urgent need to funding for their businesses.
Business Credit Cards Provide A Ready Source of Funding: Business owners appreciate the availability of this source of funding when there is an emergency or when cash flow is low.
Business Credit Cards Are Convenient: Instead of writing a million checks or having to use cash, business credit cards is a convenient way to pay for business purchases and keep track of money spent. The convenience extends to making purchases online which will be almost impossible without using a business credit or debit card.
Easily Keep Track of Expenses: Business credit cards include built in tools to make it easier for business owners to keep track of expenses. The monthly statement will include purchases categorized according to predefined categories. The online management of reports makes it easy to integrate with most accounting software and the yearend sum makes bookkeeping a breeze if all the purchases are added to that one card. Business credit cards also provide a way to keep track of employee spending.
Business Credit Cards Provide Rewards and Incentives: From discounts at retailers to airline miles and cash back incentives business credit card rewards are available to meet any every business owner's needs.
Establish Business Credit: When used responsibly business credit cards will help to build an excellent credit rating for the business. This is why it is important to pay the bill on time, stay within the credit limit and to pay more than the minimum payment so that an excellent credit rating is established. Once you do this it will then be easier to qualify for a loan or get better interest rates on any future credit cards.
There are a few downsides to using business credit cards. Consider those listed below before you go out and get one.
They Cost More: Credit cards are convenient but the convenience costs. The interest rates on a credit card could be as much as 5% over that of traditional loans. It could be a lot more if you maintain a high balance on the card. Plus if you are late on payments, use cash advances or go over the credit card limit you could wind up allocating a whole lot of your business profits to credit card fees.
Personal Legal Liability: When you apply for a business credit card you might be asked to accept personal responsibility for repaying the card if you go out of business. This could affect your personal credit negatively if you cannot repay the debt.
Little or No Protection: It is important to understand as a business owner that the protection offered on consumer credit cards might not be the same for business credit cards. This means that you may not have dispute resolution if there are errors in the transaction or if you are not satisfied with merchandise purchased. Find out the level of protection that you will receive before you apply for a business credit card.
Changes In Interest Rates: Business credit card providers can vary rates on your business credit cards at will. They will do this based your spending and the way that the account is managed.
After carefully considering the advantages and disadvantages of business credit cards small business owners need to carefully think about what they need, compare the terms offered from various providers and manage the card wisely to avoid unnecessary fees if they decide to get one.
Understanding the Difference Between Credit Cards and A Line Of Credit
There are marked differences between small business credit cards and a loan. They are outlined below.
- With credit cards the line of credit revolves. As long as the card is valid and you make payments the money is there to use over and over again. With loans the credit line is fixed so that once you pay if off you need to apply for another loan.
- Loans would normally provide higher limits at lower rates of interests than what is offered with a credit card.
- Where loans will require some sort of collateral to be used as security for the loan, credit cards provide an unsecured line of credit. The cardholder will need to sign a form which makes them liable for repaying any charges made to the card.
Advantages of Business Credit Cards
Business owners can expect the following advantages with business credit cards:
Easier To Qualify For Than Traditional Loans: Many business owners turn to business credit cards after failing to qualify repeatedly for traditional loans. The requirements for getting a business credit card is a lot less stringent and this appeals to business owners who might be in urgent need to funding for their businesses.
Business Credit Cards Provide A Ready Source of Funding: Business owners appreciate the availability of this source of funding when there is an emergency or when cash flow is low.
Business Credit Cards Are Convenient: Instead of writing a million checks or having to use cash, business credit cards is a convenient way to pay for business purchases and keep track of money spent. The convenience extends to making purchases online which will be almost impossible without using a business credit or debit card.
Easily Keep Track of Expenses: Business credit cards include built in tools to make it easier for business owners to keep track of expenses. The monthly statement will include purchases categorized according to predefined categories. The online management of reports makes it easy to integrate with most accounting software and the yearend sum makes bookkeeping a breeze if all the purchases are added to that one card. Business credit cards also provide a way to keep track of employee spending.
Business Credit Cards Provide Rewards and Incentives: From discounts at retailers to airline miles and cash back incentives business credit card rewards are available to meet any every business owner's needs.
Establish Business Credit: When used responsibly business credit cards will help to build an excellent credit rating for the business. This is why it is important to pay the bill on time, stay within the credit limit and to pay more than the minimum payment so that an excellent credit rating is established. Once you do this it will then be easier to qualify for a loan or get better interest rates on any future credit cards.
Disadvantages of Business Credit Cards
There are a few downsides to using business credit cards. Consider those listed below before you go out and get one.
They Cost More: Credit cards are convenient but the convenience costs. The interest rates on a credit card could be as much as 5% over that of traditional loans. It could be a lot more if you maintain a high balance on the card. Plus if you are late on payments, use cash advances or go over the credit card limit you could wind up allocating a whole lot of your business profits to credit card fees.
Personal Legal Liability: When you apply for a business credit card you might be asked to accept personal responsibility for repaying the card if you go out of business. This could affect your personal credit negatively if you cannot repay the debt.
Little or No Protection: It is important to understand as a business owner that the protection offered on consumer credit cards might not be the same for business credit cards. This means that you may not have dispute resolution if there are errors in the transaction or if you are not satisfied with merchandise purchased. Find out the level of protection that you will receive before you apply for a business credit card.
Changes In Interest Rates: Business credit card providers can vary rates on your business credit cards at will. They will do this based your spending and the way that the account is managed.
After carefully considering the advantages and disadvantages of business credit cards small business owners need to carefully think about what they need, compare the terms offered from various providers and manage the card wisely to avoid unnecessary fees if they decide to get one.
Compare Business Credit Cards Online
