In today’s market, finding useful investment or receiving a sufficient business loan is more difficult than it was 20 years ago. Now new business owners often finance their company on credit cards. There are major benefits to be garnered from using credit cards in your business but there are also be major consequence if a business owner is negligent and unaware of his or her spending habits. If you are a business owner, you should be aware of a few things before you attempt to open a line of credit in your company’s name at a local business bank. Not paying attention to the type, conditions and regulations of credit cards can end up costing you time, money and possible your business.
1. Define Your Company’s Spending Habits
It is important to find a credit card that matches your business’s spending habits. Using a business credit card as opposed to a traditional credit card may be more useful. With a traditional credit line, there are corporate financial reviews and your line of credit can become a term loan if certain criteria are not met such as:
- payments not made in a timely fashion
- if business revenue changes
- if credit score decreases from the issuance of the card
If you also have certain payment patterns such as only paying the minimum balance or if you pay in full every month, different cards with differing conditions can benefit your company in different ways.
2. Pay Attention to Cost and Fees
When deciding to open a business credit card, be aware of things like introductory costs, late payment fees, processing fees, etc. Costs and fees can multiply and add more to your overall cost if you’re not aware, increasing your limit and making you pay more. Review contracts and ask questions. You don’t want to be surprised at the end of a bad month.
3. Know Your APR
APR, or annual percentage rate, is the interest that accumulates on the credit used. The amount and condition of your APR can be beneficial or a huge problem dependent on payment methods. A credit card with high limit but a high APR can cause even more credit card debit to accumulate without the ability to pay it. If you only make minimum balance payments on credit cards, you are paying primarily for the accrued interest. It is a cycle that is so easy to get into and a pattern almost impossible to break. Pay as much as you can when you can and do not exceed your credit limits to avoid this common mistake.
4. Keep the Separation
Keeping your business credit card finances separated from your personal banking is a good method to employ for business owners. Using the business credit card for business purchases will help to avoid surpassing your limit as well as helping your business to build it’s own credit history.
If possible, apply for credit cards that have a great rewards package. Sometimes these packages can contain airline points, gift cards, car rentals, and discounts on business supplies and purchases. These types of rewards will benefit your business and create a reciprocal relationship with your credit lender. If you business cannot benefit from these type of rewards, do not become swept away by the promise of “free” rewards. Nothing is free in the world of credit, rewards are earned based on usage and spending.
Your Next Steps
Moving forward, you should set aside time to dive a little deeper into any topics above that may have sparked your interest. As a business owner time is your most valuable asset, so you may think you don’t have enough of it to spend on this. But a little time spent now doing the proper research, can save you days of work and thousands of dollars down the line, so it’s worth accomplishing today!
This guest post was written by Flynn Zaiger in association with Hibernia Bank – find more information at http://hibbank.com/. He’s taken an interest in learning which of the local banks in Louisiana has the best New Orleans business banking for his company. The views expressed herein are those of the author and not necessarily those of any financial institution or bank. This article is intended to provide those reading it with information about matters of current interest. It should not be construed as legal or financial advice concerning a specific topic and should not be acted upon without contacting the appropriate professional.