If you are new to managing your company and you want to keep it from too much small business debt, then you need to pay attention to what this article is about to discuss. Although debt is a natural thing for businesses, you still need to exert caution to ensure that it will not drive you under. A small company may not be as complicated as the big corporations but you want to make sure that you have full control of your finances to avoid making mistakes that can damage the business.
One of the factors that will help you take care of ordinary expenses in your company are business credit cards. These are cards that carry your business name and are exclusively used for company related purchases only. Just like consumer cards, you need to understand how you can utilize this properly so you can keep debt from overtaking your profits.
Benefits of having a credit card for your business
You may be wondering, why not just use a business line of credit instead of credit cards? Well they both give you the cash that you need when it is required. However, an LOC (line of credit) is more preferable for long term installment payments while a credit card is better for short term payments that can be made within the grace period. Since you have a small business and assuming you are fairly new to this, you have a higher chance of securing a credit card than an LOC.
Here are specific benefits that you will get from using business credit cards.
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It leaves you a paper trail. Documentation is very important for the company to help you improve your operations (internal and external) in the long run. You want to keep track of what you are spending on an a credit card is the best way to do that. It is the best way to help you identify expenses that you can use for your tax deductions.
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Separates your personal and business expenses. With a business credit card, you get to define the line between your personal and business transactions. This is very important because you don’t want to risk your personal assets in case something goes wrong with the company.
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You get to establish the creditworthiness of the business. A new company that has a limited credit history will have a difficult time getting financial aid for any business expansion plans. Business credit cards are easier to acquire and will give you the credit history that you will need for future loan requirements.
Business credit cards offer companies with higher credit limits, business related rewards and also expense tracking – which can be very useful for those who use the cards regularly. You just have to be very careful when you use it and make sure you pay off the balance within the grace period.
What to consider before applying for a business credit account
Now that we have established that need for business credit cards, let us discuss some important facts that you need to understand about it. This is necessary for you to utilize these cards so you will not fall into unnecessary financial problems in the long run.
Unfortunately, the CREDIT CARD Act does not protect businesses in the same way that consumers are covered. Credit card companies can change the interest rate, fees and various terms in your account for various reasons. While this is true for consumer credit cards, creditors are required to inform clients before hand and there is a limit to this increase. Business credit card holders are not given the same treatment. Any late payment can immediately bump your APR (Annual Percentage Rate) higher than before. Rates are also higher compared to consumer cards.
Given this, here are some tips that you can use when you are looking for the right credit card for your small business.
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Seek out the right type of business credit card. As mentioned, there are rewards that you can enjoy and you may want to get a card account that will maximize them. For instance, if your business requires you to travel all the time, get a card that offers travel rewards. You can even opt for a limited purpose card like a gas card or a store card if you know that your business can maximize its use.
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Pay attention to the fine prints. It is also very important that you pay attention to the fine prints on the card contract. Some credit card companies will honor the extended Credit Card Act and you may want to avail of those. If there is anything about the terms and conditions that you cannot understand, don’t be afraid to ask.
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Be wary of teaser rates and other introductory promos. Try not to avail of a card simply because you like the teaser rate. This can change and if you will get this card, ask the creditor when the real rate will apply and how much it will be. Understand the details of the promo and see how you can maximize the rewards of that particular program.
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Limit your credit card applications. Make sure that you only apply for credit cards that you need. Try not to get too much that it will be very difficult to monitor them.
Remember that your use of business credit cards will do more than serve you as a purchasing tool. It will also affect the credit history of your company and that can be a huge factor in future business loans that you will avail. Make sure that you define when and how it is to be used. If an employee will use this, take time to discuss the proper use of these cards to avoid racking up too much credit on it. Small business debt can ruin your company and drive it towards bankruptcy. Do not let that happen by making smart financial decisions early on.