Business credit cards are the most powerful financial tool available to a small business. According to Inc. Magazine, a 2010 American Banker?s Association study, found a correlation between start-ups credit cards use and a firm?s revenue grow; one percent increase in credit card use could contribute to 11% increase in firm revenue.
The Benefits of a Business Credit Card
Business owners can benefit a lot from using business credit cards. They can enjoy the interest free period, which is the primary reason that business credit cards could add the greatest value over other forms of financing.
Within the interest-free period, business owners don?t have to worry about any interest generated from banks if they get a loan. They just pay the minimum (usually 2%) of their principal monthly. They can utilize the funds from business credit cards to purchase raw materials, equipment, office supplies, etc. saving them much cash.
A Word of Warning
When using credit cards to finance your small business, you should never use personal cards. As you might be aware, these cards come with a far higher interest rate, and financing your business in this way is incredibly risky ? and expensive.
If you decide to finance aspects of your business using a business credit card temporarily, Entrepreneur Magazine recommends trying to replace this method as soon as possible with alternative sources of funding, such as more traditional bank funding. This carries a lower rate of interest and should be sought as soon as your company reaches a break even point, where your profits cover the cost of overhead expenses.
Business Credit Card Dos and Don?ts
Given all the benefits from business credit cards, business owners are supposed to know in advance about how much money you spent over time, and manage your capital wisely.
Do not over spend your money, or you will face some risks that you are not able to pay back all the debt during interest free period. If you pay back late, your credit history will be negatively affected. Use your business credit cards properly and manage your cost wisely and you will never face the risk of choking your profits.
Whenever you receive revenue from sales of goods or services, use the money to pay back as much of the outstanding card balance as possible. Paying back the minimum due each month might be easier on your company?s finances in the short term, but, depending on your card?s interest rates, you could end up paying 75% more for interest in the long-term.
Don?t be afraid to try to negotiate an extended interest-free period or interest rate with your bank. While your advisor won?t always say yes, it never hurts to try and you could end up saving your company a lot.
In Summary
Business credit cards are a useful tool for keeping your company afloat when you?re in the start-up phase, and during unexpected slow periods. To avoid credit cards choking your profits, however, do not use them as a funding source in the long term and pay back the balance as soon as possible.
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