If you have a small business, you likely are interested in having a small business credit card. However, while having a constant cash flow can be attractive, there are a few things every business owner and manager need to know about credit. Here are the top five facts that everyone needs to know before they make this very important decision.
1. Getting credit isn’t easy. At least, it isn’t as easy as it sounds. Unfortunately, at the time when you most need a credit card—that is, while you are still in the process of opening your business—business credit cards may be very elusive. While private parties are inundated with credit offers, a new business owner may find their mailbox surprisingly empty, except for bills. This is because of the perceived high failure rate of start up businesses. Don’t count on getting a credit line from the very beginning; apply to several different sources and look into finding nontraditional sources of credit while keeping overhead as low as humanly possible.
2. Getting credit may be necessary. There is definitely a stigma attached to making large purchases on credit. However, in many cases, having a flexible line of credit, such as a credit card, may be crucial to success. Small business owners are often faced with opportunities for expansion, such as a relevant and highly marketable new line of products, which require a sizeable initial investment. Having a small business credit card allows you to take these opportunities and pay the bills after you’ve started receiving profits.
3. Getting credit can simplify your accounting. This is one of the chief benefits of a small business credit card. You can track expenses, making it easier to keep accurate accounting records and even easier to take your maximum tax write-off. This can lead to huge savings in both time and money, a true win-win situation.
4. Don’t mingle personal and business accounts. Not only does this put your personal credit at risk and make it harder to track expenses, it can be a huge red flag on loan applications and IRS documents. Having separate accounts is part of showing the world that you are a legitimate business with professional practices. It will also allow you to build a solid credit record for your small business, allowing you to get credit with less difficulty the next time you need it.
5. Small business credit cards do not have the same legal protections as personal credit cards. Unfortunately, the 2009 Credit Cardholders Bill of Rights, which will ban certain predatory practices commonly used by credit card companies, does not apply to small businesses. This means that you will have to carefully read your credit agreement and make sure you are getting exactly what you need, with no unwanted clauses and riders. Which, of course, every small business should be doing anyway…
As you can see, having a small business care is very different from having personal credit. However, once you learn the rules, it can be a huge asset. Because having a flexible line of credit can make all the difference between success and failure, you owe it to yourself and to your employees to open a credit card account and use it wisely.