Do I Need a Business Credit Card?
Business credit cards provide some company owners with a backup option in case they need funding for various operational needs. The business creditor offers a line of credit with similar terms to a personal credit card account. Examine whether you really do need a business card for your company before you spend the time and effort to apply for one.
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Benefits and Disadvantages
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When using business credit cards, company owners can take advantage of business rewards programs. Rewards programs include airline points and discounts on purchases of business supplies. Paying all business-related expenses on one card may make accounting practices simpler to manage. On the other hand, having a business credit card could cause your business to become indebted quickly if you mismanage the account. Like personal credit cards, business cards come with high APRs (annual percentage rates).
Uses
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In many cases, business owners use business credit cards to cover short-term financial shortfalls. For instance, when a customer wants a large order and the company doesn't have the cash on hand to pay for the materials, the business owner can use the card to purchase the supplies until he receives payment. A business credit is best used for short-term financing needs.
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Initial Funding
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Due to the high interest rate on many business credit cards compared to other types of commercial loans, it isn't wise to use the card to pay for your initial start-up costs. Start-up fees aren't usually recovered quickly --- it takes time for the business to get going. In the meantime, the balance used to fund start-up costs keeps growing and charging the business interest each month.
Alternatives and Warnings
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If you do have a need for financing, consider other options for covering business expenses before opening a business credit card account. One option is to ask each of your friends or family members to invest a small amount into the business. You should also look into a small business loan backed by the SBA (Small Business Association) before inquiring about a business credit card because it commonly comes with better terms, such as a fixed rate and even installment payments. A Monmouth University business study found that every $1,000 more that a business takes on in credit card debt raises its chance of closing by 2.2 percent.
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