Running and growing a business requires capital. But oftentimes, business owners find themselves cash strapped. Clients might pay invoices late and owners might deal with other problems that delay their payments. A business credit card is helpful during tough financial times. These credit cards not only provide owners with the funds they need, they can also help owners establish business credit. But before an owner applies for a business account, it is important that he familiarize himself with these types of accounts.
1. Introductory Rates: It often takes time for a newer business to turn a profit. For this reason, some business owners use a credit card to purchase furniture, equipment, and office supplies. Choosing a business credit card with an introductory rate can help business owners in the beginning. With these types of cards, the credit card company might delay charging interest for several months. If the business owner repays the balance within this time frame, he avoids paying interest.
2. Rewards Programs: Several business credit cards offer rewards, such as airline miles, hotel discounts, and cash-back. Business owners earn a point for every dollar spent and they can exchange these points for cash or other rewards.
3. Affordability: Some banks and credit card companies offer generous credit limits on business credit accounts. This can be problematic if a business owner has a spending problem or control issues. It is imperative for owners to assess how much they can afford to pay their credit card company each month. Minimum payments are between 2 and 4 percent of the outstanding balance. Owners who charge more than they can afford to pay risk default, which can ruin the credit reputation of the company. Once the company’s credit reputation decreases, this lowers the chances of acquiring loans and other accounts in the company’s name.
4. Avoid Minimum Payments: Like personal credit cards, business owners can avoid problems by paying off new charges each month. The longer a charge remains on a business credit card, the more interest the owner pays. Owners can give themselves a monthly spending limit and then stop using the card once they’ve reached this limit. To keep interest payments to a minimum, owners can also pay off the balance before the actual due date.
5. Pleasure vs. Personal: Because business credit card limits are often higher than limits on personal credit cards, there’s a tendency to use a business credit card for personal use, such as vacations, car rentals, meals, and hotels. Owners must fight this urge and keep their business credit separate from their personal credit. Using a business card for personal reasons can quickly raise the balance, wherein it becomes difficult to pay down the balance.