Business credit cards best for building business credit — not borrowing
Early in March, this website published an article about the different forms of credit available to small-business owners. It suggested that some successful companies that had previously been forced to fund their operations using small-business credit cards might now be able to switch to less expensive types of borrowing.
Now, new research from Citibank, released May 8, suggests small businesses are doing even better than many previously thought. The study found that — even after a difficult winter — half of all American small-business owners see business conditions as good or excellent. That’s up from fewer than one in four, just four years ago.
This suggests many companies could access cheaper loans from banks and other lenders instead of maintaining expensive balances on their business credit cards.
Business credit cards and company credit
Of course, this isn’t to suggest small-business owners should abandon their cards. Just the opposite. They remain a highly convenient payment method, often providing valuable rewards and helping to streamline the administration of expenses. As importantly, some plastic allows newer companies to quickly build creditworthiness, according to the U.S. Small Business Administration. You just have to make sure:
- You manage the card well, always making prompt payments, and not using too much of your available credit.
- The card is in the name of the business, rather than yours. (Although that’s unlikely to get you off the hook if your company fails. You’re almost certain to remain personally liable for any outstanding balance.)
- The card reports to a specialist business — rather than consumer — credit agency. Not all so-called business products do, and you may have to make some calls to card issuers or dig into some fine print to confirm that.
So continue to use your business cards. Doing so may help you drive down the cost of your company’s other borrowing. Just try to avoid carrying forward balances.
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