Perhaps the most common way of funding a small business in the initial stages is through personal savings and contributions from family and friends, however, these are not generally large enough to sustain the business growth and there is always an imminent need for injecting more cash into the business. It is generally very difficult to get a bank or a credit union to lend you the funds because of the lack of a track record even if you have a good personal credit history. With such reluctance by traditional lenders, it is natural that many entrepreneurs look to making their businesses grow with the help of credit cards. While spending for the business does become easier, there are many other advantages of using credit cards for business:
No Requirement for Providing Collateral
Among the biggest problems of getting a loan from an institutional lender like a bank is that they normally require borrowers to provide collaterals that they can sell off in case of repayment default to recover their loans. Even with investors, you will generally need to give a certain part of the equity of your business. However, with credit cards; you have ready access to unsecured funds to use in any way you want for your business needs.
Helps You to Establish a Credit History for Your Business
Startups and small businesses often get refused by banks because of the absence of a credit history. With the help of a credit card, you can start off your business and meet all the capital and revenue expenditures for some time that allows you to build up a track record of operations and a credit history of successive exposure and repayments that helps banks to extend loans to you in the future.
Allows You to Retain Ownership and Management Control
If you are able to show that you have a good business model and potential for growth, it is very likely that investors will want to take up a position in your company in exchange for funds that can help the business to grow to the next level. However, the investors will generally be eyeing a share in the equity, which also means that they will also be having a say in the way the business is run. A business credit card, on the other hand, gives you both flexibility and a free run of your business.
Interest-Free Offers
It is not unusual for credit card issuers to give you very attractive offers that might include interest-free periods or periods at a concessional rate of interest that can be quite attractive as they allow you to save money on the interest, which then can be plowed back into the business to fund immediate growth and bring better returns.
Benefit from Rewards Schemes
Most business credit cards have special reward point schemes that are specially tailored to be more useful to business owners and executives. Make sure that the rewards are easy to redeem and the points can be used in multiple ways. Typically, you should be able to exchange earned points for extra miles for business, convert them into cash back or even buy gift or travel cards.
Enables Separation of Business Expenses from Personal Ones
If you have an incorporated company or an LLC, it is very important to distinguish between business expenses and personal expenses that have been met through the same credit card. Having a business credit card enables you to retain the legal protection. The business expenses are automatically segregated when you use a business credit card, enabling you to claim the business tax return deductibles at the time of filing.
Set Up Individual Spending Limits for Employees
When you use business credit cards, you can specify the individual spending limits of each card depending on the pay-grade, responsibilities, and entitlements of the concerned employee. By doing this, you can prevent overspending and exercise better control over your company finances.
Facilitates Access to Other Financial Products
Apart from the very obvious benefits of using business credit cards, you also stand to gain in other important ways as you form a relationship with the card issuer who has a basket of other financial products that you can leverage for boosting the growth of your business. Many of the banks that offer business credit cards can actually help you to take advantage of their other products like lines of credit and working capital funding or even help you to become a merchant who can accept cards or do online business.
Increases the Amount of Credit Available
By using a business credit card instead of your personal credit card to fund your business, you can actually access more funds as you will not be blocking up your credit limit with personal expenses. Having a business credit card and a personal credit card can not only help you to keep your expenses distinct and make accounting easier but also give you more access to money to drive business growth.
Ways to Build Credit History
If you have a good credit, it would automatically imply that you have been handling credit with responsibility and that you have been successful in managing all your credit obligations well and have made all repayments timely. The very first step toward building your credit history is by actually getting credit. In this context, you must understand that getting a credit card could be quite challenging, as credit card issuers and banks would be assessing your credit score for approving your application. Here are a few effective ways you could build up your credit history.
Consider Applying for Secured Credit Cards
Secured credit cards actually are a kind of credit cards which necessitates a security deposit that must be given against your credit limit before getting a loan approval. You must know that the security deposit would be regarded as the collateral and would be refunded once you close the account or when the account is upgraded effectively to actually an unsecured account. In this context, it is obvious that the credit card issuers would be approving your request for a secured credit card as the security deposit would be eliminating the credit risk involved.
Get College Credit Cards
For building credit history it is essential to have some form of credit. For college students or young adults, it is now definitely simpler to build your credit history. They could put in their request for a credit card or consider taking out a loan for covering educational expenses.
Consider Getting Retail Credit Cards
Retail stores’ credit cards usually have relatively less stringent credit requirements. You would be getting a better opportunity for getting an approval for any retail credit card as compared to other kinds of credit cards. In this context, you must appreciate the fact that retail credit cards usually, have very high-interest rates and low credit limits and they could be exclusively used in some specific retail stores.
Protect Your Credit
Your credit score and credit history are wonderful assets for boosting your overall financial health. You must necessarily be diligent for staying in perfect shape.
Conclusion
Given that you as a small business owner can benefit immensely by using a business credit card, it is essential for you to shop around before applying for a credit card. Typically, you should examine the fee structure, interest-free credit periods, balance transfer facilities, rate of interest, and any extra fees payable for special privileges, and especially everything in the fine print so that you are not suddenly taken by surprise later on. It is best to stick to only one or two business credit cards as otherwise, expense tracking, and monitoring the monthly dues can become difficult.
