Credit cards offer plenty of benefits to consumers who use them responsibly, and more so to all kinds of businesses. It is essential for a business of any size to have access to sufficient capital to run smoothly and respond accordingly to any changes that might be suddenly necessary.
While money cannot solve all your problems, it certainly helps and can put you at a major advantage. Businesses with sufficient capital for their needs can respond more effectively to changing market conditions.
How do you make sure that your business has enough money for its needs? Applying for a business credit card can be the answer. Keep reading to learn more about the advantages.
What Is a Business Credit Card?
Just as the name implies, a business credit card is meant to be used by business owners. Learn more here: www.kredittkortinfo.no/bedrift/ and be guided about getting one if you run or own a business.
Companies big and small can benefit from these types of cards. Since there are plenty of options to choose from, it is essential to consider them carefully to choose the right one for your particular business needs.
Most companies utilize their credit cards to handle business expenses such as purchasing office supplies or paying for their employees’ travel needs. Although some employees might be tempted to use the company’s business card for personal purposes, there are usually security measures in place to prevent them from doing so.
One of the best things about using a business credit card is that it can be a way for a start-up to establish its credit standing. This will be of immense help down the line if they have to turn to a bank or other lender for a loan.
Should You Apply for a Business Credit Card?
As a business owner, it makes perfect sense to maintain your personal and business finances apart. Getting a separate card specifically meant for your business can help you accomplish this. No matter how big or small your business is, lenders will be willing to provide you with a business card to suit your needs.
Some of the businesses that can take advantage of cards geared specifically for commercial purposes include:
- Online Retailers
- Small businesses
- Large businesses
In fact, no matter what type of business you have, chances are that there are various business card options that would suit your needs perfectly.
Pros and Cons
Getting a credit card for business needs is an excellent way to secure short-term financing to keep your company running without issues. However, just like anything else that has to be seriously considered for your business, there are pros and cons to think about.
Business Credit Card Pros
Some of the most advantageous things about applying for a business credit card include:
- Being able to keep personal and business finances separate.
- Protecting your personal credit
- Increase your business credit rating.
- Boost business cash flow
- Employ spending controls.
- Enjoy business rewards.
- Easier business travel
Keep Personal and Business Finances Apart
Keeping your personal and business expenses separate is much more important than it might seem. This is especially true if you are just starting a small business.
Separating your personal finances from those of your business will help you build business credit, make your company more credible to lenders for future financial transactions, help you deal with taxes in a more efficient way, and ensure your business runs as smoothly as possible.
On the other hand, if you have had your business for some time now and have never made an effort to separate your personal finances from it, it is never too late to start. Getting a business credit card can help you get started on that goal.
Protect your Personal Credit
One of the things entrepreneurs have to deal with is the fact that businesses do not always turn out to be profitable. Things can go south fast for a wide variety of reasons including bad financial decisions.
Putting all your business expenses on a business card can help protect your own personal credit if anything goes wrong with your company.
Increase your Business Credit Rating
Businesses that have been around for a while enjoy good credibility and usually an excellent credit rating as well. Those who are just opening their physical or virtual doors for business have to work hard to get to this point.
Applying for a credit card meant for businesses is a good first step toward this goal, but you will also have to make payments on time to keep it in good standing. Your business credit rating will help you secure financing later on for greater business purposes.
Boost Business Cash Flow
The importance of cash flow for a business just getting started or even those that are already established cannot be overstated. The available credit on your business card will boost the cash you have available for expenses to ensure everything from employee salaries to stocking up on supplies is taken care of.
Employ Spending Controls
Keeping an eye on what your employees are using company funds for is always important. This can be a big hassle if cash is being used, possibly even opening the door to fraudulent activity. Getting business credit cards for your employees instead will help you employ spending controls to keep everything in check.
Enjoy Business Rewards
Credit card companies are keen to partner up with businesses. They will often offer business-specific rewards that you can take advantage of such as cash back, traveling perks, mileage bonuses, and more.
Easier Business Travel
You might have to send employees to different parts of the country or the world, or you might have to go yourself to advance your business goals. Having a business card to pay for the tickets, car rental, and other necessary travel expenses is advantageous, simplifies things, and helps you keep an eye on travel costs.
Business Credit Card Cons
As one might expect, sometimes there are cons associated with credit cards. These can include the following:
- Less consumer protection
- Personal Credit Check
- High Annual Percentage Rate
Less Consumer Protection
The legal standards of protection commonly associated with personal credit cards do not always apply to those meant for businesses. This is not to say that safeguards are not in place, but you do have to read the fine print to be aware of what consumer protection is associated with the business card you are considering and what responsibilities are expected of you.
Personal Credit Check
Even though business credit cards are issued for a specific business, someone has to apply for them. This means that your personal credit will be checked by the bank or other lender to ensure that you qualify for the card in question. If the lender does a hard credit check, it can have a negative effect on your personal credit rating and even cause it to drop by a few points. Learn more about credit scores here.
High Annual Percentage Rate
One of the most important things to consider when opting for a business credit card is the APR (annual percentage rate). A business card can be more expensive to use than one meant for personal purposes. The best thing to do is to take various options into account before making a final decision on which one to go with for your business.
Tips to Use a Business Credit Card Responsibly
Just like with a normal credit card for personal finances, you have to be careful with a business card so that your spending and debt do not get out of control.
Some of the best practices to employ include paying off the balance promptly, keeping your credit utilization ratio low, taking advantage of interest-free offers, and going after the best rewards.
Pay Off your Balance Promptly
Paying your business credit card balance promptly will help you avoid accumulating unreasonable debt that can bog your business finances down. This will also help you dodge expensive interest rates that can add significantly to any amount owed.
Low Credit Utilization Ratio
A business credit card can come with a substantial credit limit, but that does not mean you should use it up to that limit. Credit utilization is the ratio of your credit card balance in relation to the limit placed on it.
For example, if you owe $1,000 and your credit limit is $10,000, then your credit utilization for that card is 10%. Be wary of how much you are adding to your balance on a monthly basis because it can cause your credit utilization ratio to skyrocket, especially with high-interest rates.
Interest-free offers allow business owners to borrow money without having to worry about interest for a defined period of time. This is extremely useful when your business has big financial needs and there is not enough cash for them.
Jumping on interest-free offers whenever you can help you deal with your balance more effectively and make your business more profitable.
Go after The Best Rewards
There are different types of rewards business owners can go after when they choose a business credit card. These rewards might include getting cash back on every purchase or something else that can be beneficial to your business.
Make sure to consider whether the rewards being offered will be useful to you or not. You also have to completely understand the terms and conditions that apply to be able to claim your rewards.
While a business credit card is essentially very much like a personal one, business owners should be aware of the key differences. These cards can be useful for building a company’s credit while helping the owner maintain personal and business finances apart.
Go over your choices carefully to make the wisest possible choice with a business credit card.