The Many Benefits of Having a Business Credit Card
As a small business owner, you probably receive applications and offers for business credit cards on a regular basis. But you may have wondered whether getting one is the right solution for your business and how they differ from other forms of credit. However, business credit cards are the most popular source of funding in the US.
Credit cards provide your business with a short-term solution to your financing needs. When used correctly, they can also increase your purchasing power by improving your credit rating. Use them incorrectly and they can have a detrimental effect on your business’s finances, which is why they need to be carefully managed.
Below you’ll find some helpful advice about business credit cards and how they can benefit you:
What Are They?
When you find a credit card that’s right for your business you’ll be provided with a set credit limit that will allow you to withdraw cash and make purchases. Just like a personal credit card, there’s an interest charge that comes into play when the bill isn’t paid in full each month. These types of credit cards are available through your current bank but it’s always worth shopping around to find the best deals and offers available. This card from Chase is an option for small businesses.
How Do They Differ from a Line of Credit?
Compared to the traditional line of credit, many people favor business credit cards because they are a great alternative with many points and perks. It is important to note that there are also some significant differences.
The first big difference is that a line of credit provides you with a fixed amount whereas a credit card will provide you with a revolving amount. This means that when you’re using your credit card you can keep borrowing up to your credit limit so long as you pay off your bill each month. With a line of credit, you’ll only be able to use the available credit once and when you’ve paid this off you’ll need to reapply for another loan.
Other important differences include the amount of interest you’re charged and the amount of money you can access. Most lines of credit will provide you with larger amounts of financing than a credit card, which is why they’re a more viable option if you need help with a significant investment, e.g. purchasing new equipment for your company. They’ll also have a lower rate of interest, costing you less over time (if you don’t pay off your credit card each month).
A credit card however won’t require any collateral unlike most lines of credit, so you won’t have to secure an asset against them to get the credit. Instead, you’ll be held personally responsible for paying your credit card bills.
The Advantages of a Business Credit Card
Here are just some of the reasons why you should consider applying for a business credit card:
You can qualify easily – If you don’t have a good or established credit history, it can be easier for you to apply for a credit card than a line of credit or a loan from the bank.
They’re more convenient – For financial convenience, credit cards are a must-have because you can quickly and easily access your funds to make a cash withdrawal or purchase, which is much easier than trying to find your checkbook or spare cash.
They provide you with a financial cushion – If sales are low or your business is running low on cash, credit cards provide you with that much-needed financial cushion to make important purchases.
You can make online purchases – As a lot of business move online, credit cards enable you to make a purchase through online vendors, providing you with added convenience and security.
They help your account’s team – Not only will you receive a monthly statement for your credit but you’ll also be offered online tools that are great for helping your account’s team manage your business’s finances. You’ll even be provided with a year-end summary that will help your bookkeeper to manage your expenses, categorizing them and tracking them in order to provide you with an accurate budget for the year ahead. It’s also a great way of monitoring employee spending if they have access to business credit cards.
You’ll get rewards – A lot of credit card companies offer businesses rewards for using their cards, including air miles, discounts and even cash back.
You’ll build up your credit rating – By using your business credit card responsibly, you’ll build up your credit rating, which is essential for the success of your business as it will help you to secure bigger loans with lower interest rates in the future.
Zachary Cook is a small business owner who writes about all manner of business topics relevant to today’s small business owner. From starting up to growing and perhaps even selling.