Financing with Small Business Credit Cards
Pros and Cons of Businesses Financing Ventures with a Credit Card
Nov 12, 2009
Banks are becoming more reluctant than ever to fund new business ventures because of today's economic troubles. With fewer loans being granted to the small business sector, more entrepreneurs are looking at credit card funding to help them get their ventures up and running
Small Business Credit Cards
Credit cards carry a variable interest rate, while SBA loans offer a fixed amount of money at an interest rate capped by the government. These traditional loans are safer than credit cards, but have dried up throughout the recession.
According to Richard Quigley, president of Chase Business Cards, small business owners are the ones that are going to turn around the economy. Banks recognize that small business lending is becoming more and more viable and are starting to offer new small business credit card options.
Pros of a Small Business Credit Card
- Keeping business and personal transactions separate is always a good idea. Tax issues and money management problems can be avoided by using separate cards.
- Building business credit can be a useful way of accessing more funds further down the line as the business grows.
- Small business credit card owners can avail themselves of discounts and rewards by using their cards and this can lower expenses when it comes to certain items, such as stationary, travel and phone services.
- Cards can be provided to employees with preset limits which can make it easier to control business spending.
- Many cards offer a 21 day grace period before payments need to be made, which can help cash flow.
Cons of Small Business Credit Cards
- A business owner can be held personally liable for problems with the company's credit account if repayments are not met on time, affecting his or her personal credit score.
- Higher interest rates are also usually charged on business credit cards compared to personal credit cards or traditional small business loans. Sometimes as much as 30% interest is charged.
- Staff can abuse credit cards by making personal purchases. The business owner needs to be vigilant about this potential problem.
- A business owner cannot dispute charges on the account. Since a business credit card is considered to be owned by a company, not by an individual, it is excluded from the Consumer's Bill of Rights.
- Because of the high interest rates incurred each month, along with the additional charges (late penalties, transactions fees, etc); a business owner can spiral into debt easily. The risk is compounded if there is more than one business credit card in use.
Where to Apply for Small Business Credit Cards?
Shopping online is one of the best ways to find cards with rewards or no annual fees. Approaching a lender where the business owner has an existing relationship may also help in negotiating a good business credit card deal.
More Small Business Information that May Interest the Reader:
The article Where to Find Free Business Loan Templates helps the reader to find downloadable plans and information for small or new businesses.
Ever wondered how to go about funding for a new business? This is answered in the article How to get Small Business Start up Loans.
How to Find the Best Small Business Insurance examines liability insurance, property insurance, commercial auto insurance and more.
Source:
money.cnn.com, Article "Small Business Credit Cards Flourish as Loans Disappear", by Catherine Clifford, information retrieved 10 November 2009.
 |
 |
 |
