Owning your own business can lead to many challenges. Access to funds is one of them. This especially holds true for new businesses trying to establish business credit. One way to solve both problems is to get a business credit card. While this is a simple solution to get your business credit started, it's not all roses and glory. You need to keep on top of your spending habits.
When using a business credit card you need to be careful about how you use it because it can lead to other problems that can impact your business. When some get that first credit card, they automatically change into a free spending big shot and start buying things they can't afford. So make sure you use the card with care and do not make any purchases that you cannot afford to pay back. Use the credit card based on how much income your business has. For example, if you are expecting receivables that will just pay for your expenses, then make only those purchases and nothing more.
You can start establishing your business credit by simply paying for your businesses expenses with the credit card. If you have bills that offer auto pay, you'll wonder how you lived without a business credit card. It's such an easy way to pay bills on time. Then at the end of the month you pay for the entire balance of the expenses. It's actually a common practice among small business owners to pay their bills in that manner because there are bookkeeping benefits involved.
When using a business credit card to establish your businesses credit, you want to make sure you make the credit card payments on time. In order to do this, you may want to save a month of expenses in your checking account. This way you don't have to worry about paying the bill if your receivables don't come in on time. Remember, the credit card company makes money on interest and fees. For example, if you are late on a payment as little as a few days, you can get slapped with a late fee. If you're really in a crunch to pay the bill on time, make sure you pay the minimum payment before the bill date and then pay the balance of the card when you get paid.
Remember, if you want to know how to establish your business credit, a business credit card is the way to go. As long as you practice sensible spending and pay your bill on time you'll be on your way to establishing credit to expand your business.
When you finally get that business credit card, it opens a lot of doors and creates opportunity for you and your business. One opportunity for a business with no credit is to establish business credit. However many business owners make mistakes that impact the business to the point of no recovery. What happens is the credit limit is so high on these cards that some business owners go on a spending spree and through the business in debt within a few months. Here are common mistakes businesses make.
They don't have a spending plan for the business credit card.
You need to know how what you are going to buy with the business credit card. Remember, the reason for getting a business credit card is to establish business credit. Plus you can use it to increase your company's purchasing power. Also, keep in mind that business credit cards come with an extremely high limit.
It's amazing what happens after some business owners get the credit card and see that limit. The feeling of euphoria sets in. Then all of a sudden they feel they have a pile of money to spend. However, nothing can be further from the truth. All it is a limit of how much money you can borrow and you have to be meticulous on how you plan to use the card.
In all honesty, you want to start out simple, start with a few expenses you can charge on the card and then pay the balance when the bill comes. The best expenses to start with are reoccurring expenses from vendors that offer auto pay. It's a great way to pay your bills on time. This leads me to my next mistake I would like to discuss.
They don't pay their bills on time.
Not paying your credit card bill on time is one of the worst actions you can take if you are trying to establish credit for your business. For one, credit card company's like to slap you with late fees if you're only a few days late! If you are really late it can put a blemish on your credit report that lasts for many years. You are basically giving yourself permission to let things slide. When you own your own business you cannot let things slide or you'll be sliding right back to being an employee. When you're a business owner, you need to stay on top of a lot of things in order to be successful. Most importantly stay on top of your bills.
Owning a business credit card to establish business credit is a great responsibility to any business owner. Unfortunately, many business owners who get a credit card for the first time make the common mistakes discussed above. However, with proper planning and making prompt payments will help you establish the credit that you need to apply for bigger loans to expand your business.
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