With small businesses being thrust forth as the future of America’s prosperity at nearly every turn this past year, it’s sometimes startling to realize that many are struggling under the strains of debt controllers’ efforts to reduce borrowing limits while simultaneously, small business revenues continue to fall. A recently published article on the dangerous possible disadvantages of credit card advantages highlighted many of the ways that this seemingly simple way to borrow cash could in actuality be one of the most costly ways to get yourself into debt. Similarly, while nearly every bank boasts affordable deals for borrowing aimed at small business owners, a look into how this is playing out in the market today suggests that it might be just as dangerous.
Digging a Deep Hole
Although banks of all different models frequently offer small businesses varying ways to borrow or take out advances on cash for company expenses, perhaps the most damaging and popular variable is the existence of small business credit cards. Like the problem with personal cash advances, the original concept of a small business credit card seems nearly flawless: banks allow small businesses to use their money for free for a very limited time until the client makes a payment, at which time the credit card is able to be paid off without any interest incurred. Where the trouble begins, however, is when a client is not able to make a payment on time.
When accidents such as late payments or even non-payments occur, the problem with a small business credit card it not only that the debt can be blinding, but also that it can bleed into your personal credit, effecting far more than your business’ bottom line. Like personal credit card cash advances, small business credit cards typically demand payment to be made in full monthly, and can place pretty heavy financial penalties on anyone who fails to meet these tough demands.
Like personal credit cards, failure to meet payments typically will result in large fees, sharply incurred interest, and even cancelled or suspended access to credit. Even worse, because small business owners are required to take on personal liability for most business debts, a crisis in gathering payments due can result in the lender reporting that on the owners personal credit reports; a negative mark that will remain on the records for no less than seven years. This will not only significantly lower the owners personal credit scores, effectively making his personal financial life more of a challenge, but will also greatly impact the way other potential small business lenders who look at credit reports will view future applications for further assistance.
Are There Alternatives?
Unfortunately for those in favor of using business credit cards for small company expenditure advances, it’s difficult to avoid the loopholes that lenders often attach to the process. It’s important to remember that credit card companies that offer small business deals are usually one in the same with those that work hard at over-charging individuals for similar indiscretions. In fact, holding the business owner personally liable is a large component of how they expect to collect on his debt; they assume that his personal financial connection to the matter will be substantial motivation for him to go great lengths to ensure the payment is paid in full every month. The assumption is not only correct, but the tactic is also completely legal, a fact evident by the rate that credit card companies will jump to snare similar customers.
However, if a small business does find itself in a difficult financial hold due to a credit crunch, there are a few ways to attempt to get out of it. In a addition to traditional routes of budgetary review and overhaul, debt consolidation, and financial counseling, there are also several ways to deal with lenders that may be unpleasant, but can help to alleviate an emergency business situation from becoming a personal financial catastrophe. First, if possible, the best scenario would be to pay off the business debt with personal funds – it may not be ideal, but if it’s feasible, it can go a long way in saving you in the long run. Second, it never hurts to speak to the lenders. While they may appear difficult to deal with at the onset of the problem, some may allow you to make a one-time minimum payment rather than paying in full or might even approve of a conversion from a transactional account to a revolving account.