Many entrepreneurs start their businesses by putting expenditures on their personal credit cards. But once your business begins to take off, so will your business expenses. Product and equipment costs will increase; your company will need office supplies and phone and internet connections; and if you or your employees travel on business, gas and other travel expenses are inevitable. Any mismanagement could consequently dent your personal credit.
That is when getting a business credit card might be advantageous for companies planning to grow. A 2020 report shows that only 53% of business owners regularly use business credit cards.
Common reasons to use a business credit card:
Another benefit to business credit cards is that they provide you with additional time to pay for business purchases. For example, inventory purchases made during the current statement cycle do not get settled until the following month when the statement payment is due. If paid in full, no interest will be due.
When determining how to choose the business credit card that is most suitable for your business, start by creating a list of pros and cons based on the different card features available. The right choice can become a very useful tool for managing your budget and offering leverage when you need it.
Here are a few things you should consider when searching for a new business credit card:
A business credit card can be an invaluable resource for your company. But it is best to remember that it is only a tool and that its true value depends on how you use it. Below are four best practices for managing your business credit card:
Missed payments can result in interest charges and late fees that you would not have incurred if you keep your balance current. Paying early, in fact, might give your credit score a small boost.
Your best bet is to be organized. Develop a bill-paying schedule so that bills do not accumulate. Make paying bills on a set schedule part of your routine.
If you can afford to pay the full balance, it is in your best interest to do so. This will help you avoid any interest charges or take a hit on your credit score. Carrying a balance over one month could make it harder to pay down the balance the next month. It could also start you off on a slippery slope of credit card debt.
As tempting as it may sound, you do not want to use your business credit card to make personal purchases. At best, it will complicate your accounting — business expenses can be tax-deductible, but personal purchases usually are not. Furthermore, using a business card for personal reasons is unethical and possibly illegal.
If you are juggling multiple business debts, it would be a good idea to consider a small business loan. This streamlines all of your debt repayment under one monthly expenditure paid to a small business lender. Ideally, you would get a loan at a lower interest rate than your credit card .
Another option would be to refinance your debt by transferring it onto a credit card with a lower annual percentage rate — for example, an introductory offer might give you a 0% APR for a limited period.
A business credit card can be a quick and convenient way to finance your small business’s short-term needs. But as attractive as it might be, you should consider the pros and cons of all available options. You should also ensure that your business credit card is being carefully managed.
Cathay Bank offers business credit cards as unique as your company. Whether you need more purchasing power or spending management, Cathay Bank’s credit card options can enhance your business.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.