Having a credit card for your business can make it easy for you to manage your expenses and track your accounting expenditures. However, business credit cards, like personal credit cards, must be used wisely. While business credit cards do have advantages, there are many disadvantages as well. Here is a look at the pros and cons of business credit cards.
Pros of Business Credit Cards
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Easy qualification – It is much easier to qualify for a business credit card than a line of credit or a bank loan. If you have reasonable personal credit, or your small business is well-established, most credit card companies will be happy to extend a business credit card for your use.
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Access to Easy Financing – When you operate a small business, you oftentimes need access to cash. Small business owners will regularly encounter cash flow problems when there is not enough cash available for a needed purchase. A business credit card can come in very handy when you need supplies, equipment, or even capital improvements.
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Rewards – Many credit card companies offer rewards and incentives for using their business credit cards. You could earn cash back, airline miles, or other rewards just for making purchases on your business credit card.
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Build Credit – Your business credit card can help you build and improve your business credit. This can be benficial when you apply for a bank loan in the future.
Cons of Business Credit Cards
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Personal Credit Issues – Most business credit cards require a personal guarantee, which means you must give them your social security number and previous credit history in order to qualify. However, this can create issues for your personal credit down the road when credit companies report your business activity on your personal credit, or you become liable for late or over-extended credit.
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High Priced Financing – Business credit cards are an expensive way to finance purchases. You end up paying high interest rates and late fees, and in most cases, you also pay high annual fees just to have the card.
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Less Purchase Protection – When you use a personal credit card, most credit companies will offer purchase protection. However, business credit cards often do not have that same protection. This translates into more difficulties returning purchased goods, correcting billing errors, and even reversing fraudulent charges.
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Security Issues – Business credit cards also include the possibility of fraudulent charges from a stolen card number. Keep your card safe and be careful regarding how you provide your credit card number online. Also, you must implement strict policies about who can make purchases on the card, and what constitutes an authorized purchase. Employees can take advantage of a business credit card if it is not monitored carefully.
A business credit card can be advantageous, but you need to realize the potential consequences and make wise choices in obtaining and using a credit card for your business. By eliminating or controlling business credit card issues, you can eliminate the potential disadvantages and maximize the benefits for your company.
