Banks realize that there is a fair amount of benefit to be had both ways through offering business credit cards to their business clientele. For this reason, you will probably be inundated by flyers and brochures offering you the opportunity to obtain a business credit card from the various issuers. This is the one occasion, where looking the proverbial gift horse in the mouth, will not hurt. Examine the different card offers to understand the features that are available, which of these you like and which of these you really need.
Just like a personal credit card, the business card allows you to purchase goods and services in stores and establishments, over the telephone or via internet. Business cards differ from personal credit cards in the sense that: *The debts are for the account of the business, not for individuals; * The business credit card is issued in the name of the business; *There are restrictions in terms of use; *They provide management reports and itemized listings of expenses charged to the card; and, *They may include some handy complimentary features such as free insurance and discounts on banking services.
There are many compelling reasons for having a separate business credit card for the business, not least of which is the fact that it is cheaper to effect payments by business credit card than by check. In addition, you (or your people) will avoid the risk of carrying large sums of cash when the business has to purchase items from stores. Other benefits to be derived from a business credit card would include: *The ability to monitor expenses closely, results in the ability to better control spending; A business credit card allows you to shop for items via the internet, which is usually the cheaper option; *Less time is spent reconciling business and personal expenses; and, *Personal resources (yours or your employee's) are not used for business transactions.
The features of a business card will differ from provider to provider. You will have a choice between two basic types: The charge card and the credit card. The charge card, like Diners Club and American Express, usually offers higher spending limits, but requires full payment of the bill when it falls due. If your business has sufficient cash flow, the charge card would be a good choice. Most corporations also select this option for the business credit cards issued to their officers.
If the business cash flow is not quite as flush, a business card makes for a better alternative because it allows you to pay only a portion of the total amount due. Interest is charged on the amount left unpaid. So, if you can spare the cash, rather avoid those costly interest charges by paying the entire outstanding balance as and when it falls due.
Banks are not the only institutions that issue business credit cards. Savings and loans associations, as well as credit unions are issuers. Of late, several big companies also started entering the credit card business. If your business is a regular customer, these companies may extend a business credit card facility to you. This option is well worth the consideration.
For startup entrepreneurs having an excruciatingly difficult time raising capital for their project, borrowing against business credit cards becomes a very real temptation; and sometimes, it is the only option immediately available. The caveat is that if you do not manage your business credit cards wisely, you may end up failing in the venture that you have long wanted to establish. Without proper management, the debts that one incurs from business credit cards will simply pile up.
Business credit cards undoubtedly are very convenient to use. The moment you get approved for business credit cards, you get a guaranteed credit line that you can use virtually anywhere, anytime you need it. In spite of not having the cash, you can purchase what you need for the business with your business credit card. The convenience that business credit cards provide can also be the pitfall; and to the unwary user, business credit cards can be dangerous.
Knowing that business credit cards can be dangerous does not mean to say that you should not resort to using business credit cards to prop up your business. The key thing in minimizing the danger is to use the business credit card wisely, or to use it within bounds.
You might be too excited about a new business and get carried away about making more money and having a better life. But wait! Have you ever considered your fallback options should things not work out as you expect them to be? Remember that filing for bankruptcy is no longer an attractive option; the bankruptcy laws have been amended recently, and it is more difficult now for debtors to escape creditors in this way.
There is a way to avoid the debt trap. You should keep track of purchases you charge to your business credit card ? which you can easily do by logging onto your account at the business credit card issuer's website. You should then work out your payment plan in advance by estimating your cash flow per month, and using this figure to calculate how much you can afford to pay against your business credit card debt. Pay off the entire business credit card balance as often as you can afford to. If that proves difficult to do, try to pay more than the minimum required payment for each month. This is the only way you can stay ahead of finance charges and the very painful bite of late payment fees and default APRs. Unless you have already arranged to remove the personal guarantee you signed in favor of your business, anything that happens to the business credit card account will have repercussions on your personal credit report.
It is necessary ? and quite educational, really ? that you do comparison shopping on trends in business credit card rates. You must educate yourself about how you can effectively use the float period on purchases, the fees for cash advances and late payments, over credit limit charges, balance transfer fees, and penalties for late payments. Then, there are also the annual fees: some business credit cards charge annual fees while others do not. There is a lot of information about business credit cards on the huge variety of websites devoted to the subject. Manage your business credit cards well, and they will help you finance your business.
Both Devlin Gilliland & Creditwisdom are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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