How to Properly use a Credit Card to Finance your Small Business

How to Properly use a Credit Card to Finance your Small Business
How to Properly use a Credit Card to Finance your Small Business. Image source: Supplied.

 

Many small business owners are hesitant to use credit cards to finance their company. However, in recent years, credit cards have proven to be a popular source of financing for many small businesses. That said, there are a few considerations to keep in mind.

Credit cards are not to be taken lightly. They are important sources of financing that when used carefully can offer your business many benefits. We’re going to cover several of these considerations in this article that focuses on the right way to use credit cards for your small business.

Understand the Right way to Use a Credit Card

The first thing you’ll need to understand is how to use a credit card in the right way. Business credit cards provide a source of revolving credit, which can help when the business falls into times of cash flow problems. A card allows you to pay off short-term purchases, pay utilities and more, even if clients are late making their payments. The business can still function by using a credit card to fill in the gap.

In addition, a business credit card can help build up the company’s credit rating. Keeping your company’s credit rating high is important, as this is what lenders use to evaluate whether or not it can get loans in the future, etc.

Understand the Risks of Using a Business Credit Card

Along with the benefits, you’ll need to be aware of the possible risks of using a business credit card to finance your small business. For example, overspending and spending up to the credit limit can make the business look financially irresponsible. Misusing credit cards can cause your company’s credit rating to fall, making it harder to obtain loans later.

Always use your credit card with care, and have a plan in place on how to pay the balance off each month, etc. Try to only spend up to 50% of your credit limit, too. This makes you look more responsible to lenders and can improve the company’s credit rating.

Choose the Right Credit Card

First, look for a low rate credit card. If you have to carry a balance, then you’ll want the lowest interest rate possible, otherwise you’ll end up paying huge interest fees each month. A lower interest rate will save money.

Look for a business credit card that offers a rewards program or cash-back on purchases. These help you to earn perks for travel or earn cash-back, which puts money back in the company’s pocket.

Make Payments on Time

Making your payments on time is crucial when it comes to financing your business with credit cards. Before making any charges on your card, make sure there’s a plan in place on how the balance will be paid off. Otherwise, you’ll run into debt issues, which can quickly bring your business to an end.

With a plan in place, make sure to pay the balance in full (if possible) each month and make the credit card payment on time. If you’re late, the card issuer will add on late fees, which can be very expensive. These will be added to your balance along with the interest fees.

Balance Transfer Offers

While you may be completely happy with the current credit card, it can save the company money by watching for credit card balance transfer offers. You may also find business credit cards that offer better interest rates, etc. There are also credit cards that offer sign-up bonuses that can be a huge benefit to the company.

Take the time to thoroughly research the offers before applying. It pays to ensure the offer is a good fit for your business and that you’ll be able to pay off the balance before the balance transfer deal expires. Otherwise, it could cost you more money in interest fees. Remember, you’re trying to avoid interest fees, so pay the card off each month and on time.

These are a few of the ways to use business credit cards to finance your company. Just be sure to have a plan to pay off the balance and pay on time. Then you’ll have all the benefits a business credit card can provide your company.