Credit Cards and Your Business
If you are trying to get your small business started, it is not absolutely necessary for you to have a business credit card. It can, however, certainly help.
For one thing, using a credit card can help relieve the inevitable cash-flow crunches. Although you may not want to rely on a credit card for your capital, it can obviously come in handy when you have a necessary purchase but cash is tight. Many business cards even come with special software that can make it easy for you to track expenses and keep records for tax purposes.
There are, of course, also drawbacks to using small business credit cards. One of the biggest things to be aware of is that your personal and professional finances will be blended, at least for the first few years. Your business credit card will have the same personal liability as a personal credit card. That means that if your business defaults on the credit card payments, the creditor can come after you for payment. Most lenders will require you to agree to this provision on your card application.
Your small business credit card will even show up on your personal credit reports. Just as with your personal credit cards, a late payment or large balance could affect your personal credit score and make you look more overextended than you are personally.
There is good news, too. The personal-liability agreement may not be permanent. After a few years of timely payments, your lender might be willing to remove the personal liability from your business credit card. Eventually, if your business establishes its own credit history, you should be able to separate your small business credit card(s) from your personal credit reports.
Because business credit cards are intended for use by companies and not consumers, they also come with fewer consumer protections than a personal credit card. Whereas with a consumer card you can dispute billing errors on the account within a certain time limit and not have the disputed amount listed as delinquent, or the card canceled, this is not true with a business credit card. This also applies to ordering merchandize that you receive in poor condition. With a personal credit card, you could dispute the charge, and if the vendor doesn’t cooperate, the credit-card company steps in on your behalf. If you have a business credit card, the card company doesn’t get involved with these disputes.
You may wonder if it’s actually worthwhile to have a small business card instead of just relying on your personal card. Well, it probably is. The overall advantages that a business credit card offers can outweigh the risks, as long as you handle your account wisely. Here are some tips for how to find a good business credit card and not get burned.
- Do your research and be sure you clearly understand what is involved in all of the fine print.
- Wait until you have the necessary capital to actually launch your business instead of relying on credit cards.
- Don’t carry a large balance on a high-interest credit card.
- Keep your business expenses separate from your personal expenses.
- Pay all of your credit cards and other bills on time every month.
Check your credit record frequently to be certain that it remains good.