There may come a time for any small business owner when a credit card becomes necessary. For some, it may be caused by a temporary cash flow problem, while for others it could be necessary in order to allow employees to make a company purchase. Whatever the reason, small business owner should be aware of the potential hazards of using a credit card, as well as the possible benefits.
Pros of using a business credit card
Though credit cards in general have received a negative connotation in the last few years, when used correctly, they can be a powerful tool for a business owner.
- Emergency funding – When cash becomes tight, a credit card can provide quick access to emergency funds that can be used to pay vendors and make special purchases. This can keep operations going and allow the business to continue to provide service to customers.
- Build up credit – Using a credit card for general business operations, and paying off the balance each month, can be a good way to build a good credit score for the business. Then, when it comes time to apply for a loan in order to expand the business, success will be more likely.
- Rewards programs – Certain cards provide customers with perks, such as frequent flyer miles, that can also be used to reduce expenses for the business. Finding one that fits the needs of the business is important, since using one that doesn’t provide any benefit will not help the company.
- Easier to acquire – Being approved for a credit card is usually easier than applying for a business loan. Credit companies may have less stringent requirements than banks.
Cons of using a business credit card
Despite their many benefits for business owners, credit cards can also prove to be a hazard in the wrong situations.
- Damaged credit – Consistently paying the bill in full and on time each month will result in a good credit score, but if the bill cannot be paid on time the result will be damaged credit, extra fees and higher interest rates. All of these will have a negative impact on the business.
- Personal liability – Since the owner of the business will be the one applying for the business credit card, they likely will also have to agree to be personally liable for any debt accrued on it. If something happens to the business, they will still have to pay what is owed on that account.
- Increased debt – If only the minimum amount is paid each month and not the total amount due, the higher interest rates of a credit card can quickly make the company’s debt unmanageable.
As with any business tool, how a credit card is used will determine whether it is a positive or a negative for the company. Being aware of the potential pitfalls of a credit card, and avoiding them, can help a small business continue to operate with success.
What are your thoughts about using credit cards as a small business owner? Feel free to leave your comments below, and our team will happily answer any questions that you have about using a business credit card.