Often entrepreneurs, especially those running small businesses or people looking for finance to fund their business start-ups resort to credit cards as easy source of money. However, before using credit cards to finance your business, you should be aware of the pros and cons associated with credit card usage.
Personal Obligations of Using Business Credit Cards
Don’t consider your “business credit card” to be something different from your “personal credit card”. Unless, you have incorporated your business, you are solely responsible for all your business debts. In sole proprietorship form of organization, your ability to raise revenues and making credit card payments determines your personal credit rating. Your personal credit rating will consequently determine your ability to borrow in the future.
In incorporated business, if you are the major shareholder of your company, you may be required to be the guarantor of the credit issued by your bank. Generally, banks require shareholders with stakes above 25% in the business to become guarantors for the credit. Guarantee forms often require guarantors to be jointly responsible for the entire debt amount, even if they are not 100% owner of the business.
Be Aware of the Rate of Interest
Often credit card holders are unaware of the exact rate of interests. Often entrepreneurs are lured by attractive introductory programs, which offer low interest rates, interest-free credit or financial rewards such as cash back programs. However, after the end of the brief introductory period, you would be required to pay interest at the prevailing market rate. The high rate of interest might eat into your profit and make it difficult for you to manage your business finance.
Use Credit Card only when Required
Do not use credit card as the major source of business finance. Only use the credit card when you feel it is the most convenient means to use for quick payment. Use your credit card only when you can afford to pay back the money on time and when the interest rate is low.
Limit the Number of Credit Cards
Often entrepreneurs sign up for a number of credit cards issued by different banks and financial organizations. You might be tempted by the multiple source of finance but over time, managing the debt accruing from so many sources will make it troublesome for you to manage your business.