You might be hesitating to apply for a business credit card. After all, why accrue debt when you can pay with cash you already have? Well, Entrepreneur’s feature on debit use explains that it’s much safer to opt for credit rather than debit for both personal and business finances.
In 2019, losses linked to debit and credit amounted to $16.9 billion, and this was due to phishing, skimmers, and other methods of theft. However, while debit cards provide a direct line to your cash, credit does not. If an unauthorized user purchases with your credit card, your cash is still in your account. Moreover, you can dispute the transaction with your bank. This can be crucial for businesses building their foundations or scaling up. That said, the safety net isn’t the only upside to using credit.
If you’re thinking of applying for a business credit card, specifically, consider the following factors.
Benefits of Owning a Business Credit Card
• Clear demarcation between personal and business expenses
One of the advantages of getting a business credit card is that it draws a distinct line between your personal and business expenses. This is especially ideal for those with a smaller budget, since our article on ‘4 Essential Budgeting Tips to Better Navigate Your Finances’ emphasizes tracking every item you purchase. This separation makes it easier for you to monitor your spending for yourself and your business. Furthermore, it’s useful when you have to list down your business expenses during tax collection.
• More accessible than corporate credit cards
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Corporate and businesses credit cards are both issued to enterprises, but there are critical factors that set them apart. AskMoney has plenty of financial resources on credit cards that highlight the key differences between all credit lines. In fact, their article on corporate credit cards points out that you’d have to meet with a bank representative and an audit before getting approved for this card. On the other hand, you can get a business card once your company information and credit score are checked. Moreover, corporate credit cards often do not have rewards programs, which brings us to the next benefit.
• Greater reward programs
Business credit cards also come with reward programs, so it’s important to scout for options that will be great for your business. Cashback incentives are always helpful. Meanwhile, if you and your employees often travel by plane, a business credit card with an airline miles program is suitable. You can also go for those that offer gas rebates if you’re always on the road. Essentially, scouting for the best business credit card entails checking its rewards programs to see what suits business operations.
Important Factors to Look Out For
The aforementioned benefits can be convenient for your business. But before you apply, here is some critical information to consider.
• Look into your business credit
Before applying for a business credit card, the US SBA warns that financial institutions will look into your business bank account to assess your company’s reliability as a borrower. Your net terms with vendors and suppliers can also influence your business credit and affect your chances of getting a business credit card. While this type of credit card can help in improving your credit score, keep in mind that a low score has significant and often expensive consequences.
• Assess your cash flow
Credit cards can sustain your operations even when your cash flow is tight, but you must never forget your responsibility to pay your bills on time. The Census Bureau discovered that more than 20% of small business owners failed to pay their credit card bills during the first few months of the pandemic. While this is understandable due to the circumstances, late payments like these can negatively affect your credit score and even your card’s interest rates. So, before you apply for a card, make sure that you can meet each month’s dues and have an emergency fund ready in case of financial drawbacks.
Business credit cards provide plenty of benefits, such as better financial organization, greater accessibility, and even lucrative incentives! However, you need to consider your cash flow and business credit before you apply for one. Thus, whether or not a business credit card is a good idea depends on the state of your business as well as your financial management skills.
For more business and financial information do read our other articles at Catalyst For Business.