Financing is always a factor for small businesses that are just starting out. During the first, most important years, a small business needs enough capital to grow and get through the growing pains. The financial plans in the business plan may not be enough to cover everything in reality. There are usually a few things that come up out of the blue and weren't planned that will require some extra cash. This is a great time to use a business credit card.
If you want to know if a business credit card is an absolute must, the answer is no. A business credit card is not an absolute must. But who says it can't help in a useful way? The truth is that a business credit card gives you both the confidence and the cash you need to get through a cash flow crisis. Even though using a credit card to finance your business may seem like a waste of money, you may need to do so if you need to buy a few things or pay for a transaction while your cash is being used to buy inventory.
As long as you pay all of the charges on your business credit card on time, having one in your wallet can be helpful. The credit card statements you get every month are a good way to keep track of your spending. Some business credit cards even have a microchip built in that lets you download your account history from the website of the company that gave you the card.
As with any transaction involving debt, there are some risks you should be aware of. If you know what to expect, you can prepare for it.
The first risk is that your personal finances and those of your business will be inextricably linked, especially in the first few years that you have a business credit card. When you fill out the application for a business credit card, the terms and conditions of the contract will say that you agree to take personal responsibility for the card, just like you would for a personal credit card. That's fine as long as your business does well and you have enough money to pay off the business credit card debt. But if the business can't make payments when they're due, the credit card company will come to you.
Your credit score is the second thing that could go wrong. When you first applied for the business credit card, the lender would have looked at both your personal credit history and the business's credit history. If the business doesn't pay its business credit card bill on time for any reason, this will show up on your personal credit report. This will hurt both your credit score and the business's credit score.
If you run up too much of a balance on your business credit card, lenders may decide that you have too much credit, even if you always make your payments on time.
A business credit card is a good way for a small business to have a financial safety net, as long as it is used with the same care and caution as your own credit card.
