When you have an idea or are planning to start your business, your first thoughts are finances. Of the many financing options available, a credit card is a viable option as many banks may not lend to a new business due to a lack of credit reports.
What is a business credit card?
A business credit card is intended for businesses, unlike personal credit cards, which are intended for individual expenses. Business credit cards are especially beneficial for small business owners, who can keep their business and personal transactions separate to track costs and for tax purposes.
Personal credit card or business credit card
Compared to a personal credit card, a business credit card is less risky, even if the company goes bankrupt. If you use a personal card to finance your small business, there is a risk that debt will accumulate if the business does not make a profit. Opt for a business card as they have a higher credit limit due to the size of the costs incurred by a business compared to your regular purchases.
Credit limit for business credit cards
Your credit history and profile determine the credit limit for your business credit card. Banks also take into account the company’s credit history, annual income and location of your business before determining your credit limit.
A good credit history will help you get a higher credit limit. The maximum credit limit on your business credit card may differ per bank. Check your bank’s website or contact customer service for more information about the maximum credit limit on your business credit card.
How should you use a business credit card for your small business?
It is advisable to make online payments or cash register transactions via your business card. Avoid withdrawing cash from your business credit card as it may incur additional ATM withdrawal fees. Make sure you pay your credit card bill before the due date to avoid interest charges.
Disadvantages of a business credit card for small businesses
Personal credit history: A business credit card requires a personal guarantee from the user. You must qualify for a business credit card based on your credit history and profile. That’s why it’s important to have a good personal credit history; if you do not have a good credit history, your application may be rejected.
High costs: It can become expensive to maintain a business credit card as it charges higher interest rates and high annual fees. Interest rates and annual fees may vary from bank to bank.
In short, before purchasing a business credit card as a small business owner, research all of your financing options. Choose a financing option that suits your financial capabilities, the nature of the business and the risks involved.
