Small Business Financial Article
|Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.|
Why Your Small Business Needs a Business Credit Card
One of fundamental tenets of operating a small business is that you should not mix business finances with personal finances. It can only complicate your life and it also irritates the IRS. However, it’s difficult for a new business owner to avoid using a personal credit card because most banks won’t issue a business credit card unless the business has an established credit history. It’s definitely a Catch-22. Still, it’s important to have a deliberate plan in place to build a credit history for your business so that you can take advantage of using a business credit card and the advantages are many:
Keeps your finances separate: This alone can save you a tremendous amount of time, effort and costs in terms of record keeping, and it is the best way to assure that you can avoid an IRS audit.
Reduces personal liability: Although business credit cards vary in terms of the limits of liability, some cards offer strictly commercial liability which means you are not personally liable for debts.
Improves business cash management: Being able to plan expenditures around expected receivables can enable you to keep more working capital available while covering your operating costs. Utilizing the interest grace periods of credit cards effectively can improve your overall cash flow. Plus, most business credit cards come with online account management for easy access to transactions, reporting and account reconciliation.
Higher credit limits: Small business credit cards tend to come with higher credit limits which means you can have access to more capital when it’s needed.
More control over expenses: They are especially useful for controlling employee spending. Most business cards allow for free, additional employee cards.
Cash back rewards: It’s not uncommon for a small business to spend tens of thousands of dollars a year on office supplies, fuel, utilities, and anything else that is essential to operating the business. Many business credit cards include a robust cash back rewards program that can literally save your business hundreds of dollars a month.
Now that you know all of the reasons why you need a small business credit card, you need to plan a course to obtain one. Of course, you could simply try to apply for one. Your personal bank would be the best place to try. However, most banks do require that a business have an established credit history before extending any significant line of credit. But, that can be accomplished faster than you might think. Here are some key steps to follow:
Get a gas credit card: These are more easily obtained and can get the ball rolling on reporting credit payments to your business credit report.
Open a vendor credit account: Many office suppliers are willing to extend a small amount of credit to newer businesses. It would be helpful if they did report your payments to the credit bureau, but even if they don’t, it’s beneficial to have them as a credit reference.
Take out a small business loan: If you work with a local bank or credit union, they may be more inclined to extend a small working capital loan. If you can show a stable stream of receivables you could qualify for a revolving loan using your receivables as collateral.
Build your personal credit score: While banks consider your business credit history, they also look at your personal credit history to gauge your credit integrity.
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