Business credit cards create a powerful cash-management tool for new entrepreneurs. They also lay a trap if the new business owner chooses the wrong card, uses the card unwisely or does not carefully monitor spending.
Choose the Card Wisely
A new entrepreneur filing for an employer identification number or establishing a business checking account will soon find a mailbox full of offers for business credit cards. These cards offer good benefits, but a wise choice of cards can save money and time.
A new entrepreneur should look first at the annual rate of interest the business credit card issuer charges beyond any introductory rate. Additionally, be certain to understand what happens to that rate after a late payment.
Even good interest rates can be offset by high monthly fees. Be aware of fees charged monthly that do not kick in until after an initial grace period. These fees will simply show up as a charge on the business credit card.
Carefully compare all added benefits of the card. A few benefits can include the standard travel reward points or cash back. However, many business credit cards also offer sophisticated spending tracking tools and added cards for employees.
Choose the business credit cards that offer the best array of benefits. Be very careful to understand all fees, penalties, transfer fees and prepayment rules.
Spend According to Plan
Business credit cards compare to a business line of credit or any other borrowing the new entrepreneur undertakes. All such borrowing-based spending should be done according to a business plan.
A business plan develops specific tactics based on long-term goals and strategies. Be certain that the business plan tactics include specifics for uses of the business credit card.
Don't Overuse
The U.S. Small Business Administration estimates that half of new businesses are no longer in operation after the first five years. The primary cause of business failure is underestimating capital requirements.
For the new entrepreneur, a business credit card offers access to funds when times are tight, and times are often tight. Resist the temptation to overuse the card to meet cash shortfalls. Even the most competitive business credit cards carry a high rate of interest after introductory rate periods. The interest expense can balloon quickly.
Consider carefully keeping a reasonably low borrowing limit on the card, even if the business qualifies for more.
Use Every Feature
Business credit cards offer benefits in addition to cash flow help. Use every tool available to help your business. Maximize travel reward points for business travel cost reduction or employee incentives. Take advantage of all cash management tools offered. Prepay and save interest if prepayments are allowed.
Monitor Employee Spending
Every business credit card allows the entrepreneur to monitor spending almost as it occurs. Be certain to set employee spending limits, monitor employee use of the cards and stop trouble before it arises.
Use a similar discipline for monthly monitoring of all uses of business credit cards. The card issuer will have suggestions in this area as well
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