New businesses need a source of spending capital to create a successful venture. In the past, many new business owners would rely on personal credit and savings to secure the goods and services of their business. Today, this is no longer necessary.
Many credit card companies have recognized the need to provide credit to the small business owner. Don’t get me wrong, the credit card companies have a profit to make here as well, and that is their true motivation.
However, a small or new business credit card is a powerful financial tool for any new business owner. Consumer, or personal, credit cards are designed entirely for the purpose of personal expenditures. The terms of personal credit cards preclude their use for business expenses, especially cash advance to cover payroll costs and inventory purchases.
While the acquisition of a new business credit card is a relatively simple procedure, it involves more than simply using your business name on the card. Acquiring a valid credit card to be used for business purposes involves a few simple procedures.
Begin the process by separating your business expenses from your personal expenditures. Determine which expenses are strictly related to the business and do not use personal credit cards to pay for them.
Continue the process by researching credit card terminology and the various business credit card plans that are available. Each company sets their own guidelines for things such as interest rates, late fees, grace periods, cash advances, and more. Select the card that best suits the needs of your business.
Once you have selected the credit card company that you will acquire a business credit card from, verify that the company will report to the business credit reporting agencies all of your business credit activity. To facilitate this process, open a file with each of the business credit reporting agencies for your business credit history.
Next, prior to the actual application for a business credit card, the small business owner should establish a positive business credit history. This can be accomplished by securing a few vendors who will extend a small amount of credit to your company. Make a few purchases through these vendors and pay promptly. Request that each of the company’s report your payments to one of the business credit reporting agencies.
Additionally, applying for a credit card for your business with a company that you already have dealings with will make the process that much easier. Initially, it is an excellent idea to restrict the acquisition of credit cards to one for your business. Multiple cards are unnecessary.
Once you have acquired the card, pay promptly always. In fact, making payments online may be quicker and easier. Since checks clear more quickly these days, take advantage of the grace period offered by credit card companies and use the plastic method for purchasing goods and services. Additionally, avoid using credit cards for cash advances. Fees are generally assessed against the account and deplete your financial resources that much more quickly.
A business credit card will make the job of tracking expenses easier with end of the year summaries that most credit card companies make available to the credit card holder. Business credit cards with preset limits can be used to limit and control employee expenditures for the company, as well.
Likewise, relationships with vendors are generally less strained when business credit cards are used. They receive payments promptly and additional fees are not tacked on to your business account.
Specific rewards and incentives that are attached to a business credit card may come in handy and save additional money later on down the line. Plus, a positive credit history can be established with proper use of a business credit card. In turn, this can be used to secure future loans or sources of credit.
Owning a business credit card may provide an air of legitimacy to the business, especially if the business is new. It is important, however, to note that some credit card companies will charge additional fees for things such as, additional credit cards for employees and annual fees. The cost is minor compared to the peace of mind that is provided with a simple and reliable source of financing for the business.