The days of easily getting a business loan are long gone. According to a 2008 survey by the National Small Business Association, America’s smallest companies are facing harder times, with more than 35 percent of companies with four or fewer employees saying they could not get the financing they needed. Increasingly, credit cards are turning out to be the financing option of last resort.
Business credit card issuers, competing for small business attention, present a smorgasbord of choices in reward and discount programs for small business credit card users. These credit cards, used responsibly, may help small businesses stay on course.
Business card options
Credit card issuers such as Chase, Visa, Discover, MasterCard, and the Open network at American Express, offer cards specially tailored to owners of small businesses. Benefits offered include extra cards for employees, airline miles, gas rebates, rewards points and savings on business supplies.
Credit card companies are also offering low or non-existent interest rates on new cards. No interest credit cards offer a limited time opportunity to finance your business without paying a penny of interest. But, missing a payment due date or not paying off the total before the deal ends could result in hefty interest fees — on the whole balance, not just the remainder of what you owe.
Personal finance author Eric Tyson said that if a small business owner decides to use a business credit card they should be sure they know what they’re getting into.
“Be sure to compare different ones and to understand the interest rates and other financing terms that they carry,” Tyson told BusinessNewsDaily.
Tyson, who in general is not a fan of using credit cards as a mean of financing a startup , said that if you do get a business credit card you should make sure you segregate its use from your personal credit cards. Mixing personal and business credit purchases makes it difficult to sort through your business expenses at tax time or if you get audited by the IRS. Keeping business and personal cards separate will also allow you to take advantage of quarterly and annual statements provided by your credit card company. These statements break down your expenses into categories and can be very helpful when you’re tracking expenses.
On the downside
While business credit cards can be a tempting way to keep a company afloat, using them as a regular practice is not always advisable. Using them to buy some big-ticket item when money is temporarily tight is one thing, but their misuse can bring a business down.
“We always recommend against credit card usage by our clients to finance their venture as it is a ‘red flag’ for business failure,” John Hunter, a SCORE business counselor, said in an email interview. Hunter served in executive and consulting capacities with major domestic and foreign banks in New York City.
One way to ensure that you do not overextend your business’ credit card debt is to commit to using only one card. Using multiple cards, one after the other to pay all the bills and suppliers, can be financially risky. Sticking to one helps maintain a reality check on your credit status and expense tracking.