Should You Get a Business Credit Card?
Small business owners often turn to credit cards for all kinds of purchases. That's because they often find it tough to qualify for loans from banks. Here are some of the pros and cons of using credit cards for financing a business.
Pros of Business Credit Cards
If you're boot-strapping it to get your business going, you probably have little cash available to you. A business credit card can allow you to buy what's needed to get your company off the ground. Purchases can be made at the time you need them, instead of waiting to get approval for a business loan. About 44% of small business owners used credit cards to finance purchases in 2007 and 2008, according to the National Small Business Association.
Many credit card companies also offer statements that can help you keep better financial records. They usually offer a monthly breakdown of purchases by categories. If you have multiple users of credit cards at your company, a consolidated billing statement can allow you to view all of your employees' expenses together. This can allow you to analyze spending patterns and look for ways to cut back on expenditures.
Cons of Business Credit Cards
Any credit card you get is likely to charge a higher interest rate than a bank loan. Even if you use low promotional rates you eventually have to pay a higher percentage. Also, if you are late with a payment, the interest rate on the credit card can and often does rise. Balance transfer offers also usually come with a fee.
Credit cards also can tempt small business owners to purchase a supplies and equipment they really don't need. For instance, while it probably makes sense to get a set of business cards and a Web site to get going with a business, you may be able to wait awhile on ordering a lot of fancy stationery, brochures, office furniture, and other supplies until later.
What Are You Paying for Rewards?
Some business owners like the rewards programs that come with business credit cards. Rewards programs may include earning airline miles, merchandise, hotel stays, or cash back. Avoid getting a card that has rewards you won't ever use. Also keep in mind that rewards cards may have an annual fee or higher interest rates than nonrewards cards.
Published 12/17/10 (Modified 04/03/12)