Running a small business requires hard work and true dedication. Beyond having the right attitude however, you must also understand some of the fundamental practicalities of the corporate world, with the organisation of your companyâ€™s finances being a top priority at all times. So if you have ever found yourself asking, â€˜how do credit cards work?â€™, then here is a simple breakdown of some of the most important points to consider.
What is a business credit card?
A business credit card works in much the same way as a personal one in that it allows you to make purchases and payments up to a pre-agreed credit limit. This must then be paid back â€“ usually with interest â€“ via monthly repayments.
Are they important?
If you plan to carry out payments via credit card, it is very important to do so with one that has been designated to your business. Not only will you be able to secure different repayment schedules and interest rates but it makes the process of filling out your tax return much easier, as transactions for your personal life have been kept separate.
What do you need to get one?
There are a lot of credit cards out there and just as with one for personal use, it is wise to shop around for the best offers and make the most of advice on how to get the card that is right for your businessâ€™ needs. As for the information you need to apply; your name, business name, address, phone number and annual income will usually suffice. In some cases the lender may want to check your personal credit history to ensure you can be trusted to meet repayments, so taking care of your credit score â€“ both business and personal â€“ is always advised.
What are the risk****s?
Like with any card, there are risks to consider. If you miss repayments or go beyond your credit limit, you will likely incur hefty penalty charges and could potentially slip into unmanageable debt. You want to pay off at least the minimum amount required each month and ideally more if you can afford it, as the less money you owe to other people, the better. So long as you stay organised and ensure that cash is flowing into the business at a healthy rate, then credit cards remain a valid payment option.
Is it worth getting one?
Many countries have seen a continued fall in the number of lenders willing to hand over large sums of money in the form of business loans. While this initially caused concern, it has since become apparent that the market place has actually seen a shift towards smaller, more affordable means of borrowing money, where the risk of debt is smaller, the interest rates more reasonable and the repayments manageable; the credit card is a fine example of such an option.