If you’re a business owner, you probably have a business credit card. That magic piece of plastic can increase your purchasing power, help you earn points, and make tracking your day to day transactions a breeze.
But, you also probably know that using the credit card’s money does come at a cost, often to the tune of 16-31% APR after the introductory interest-free period is over. It’s a strong tool at your fingertips that you should use carefully. In this post, we’re going to discuss some helpful guidelines on when to use and when not to use your business credit card.
Learn how Honeycomb can help refinance high-interest business credit card debt.
Keep the business card about the business, not personal expenses.
While credit cards can help your business whether its natural ups and downs, those high APRs can also lead to a slippery slope. If the business is doing well yet your profits aren’t where you want them to be, it might be a good idea to look at how much of your revenue is going towards repaying credit card debt. If you’re in this position, you might be interested in finding a way out.come tax time!
But that’s not all, keeping your personal and business expenses separate can help protect your personal finances from litigation in the event you get sued. No business ever thinks they’ll be sued but if it ever happens, make sure you’re not piercing the corporate veil!
Business credit cards help manage cash flow but are a shaky foundation for expansion
A business credit card is great for managing the ups and downs of a business. In the offseason, it’s common for many businesses to put some expenses on their credit card to pay it off once business picks up again. Credit cards are a great way to stay in a strong cash position during dips in the business. Similarly, if business is starting to pick up, business credit cards are also good temporary ways of meeting increased demand.
Keep in mind though, past the zero-interest introductory period, business credit cards can be an expensive way to fund business growth. If you’re looking to launch a new venture or making strategic investments into your business, it might be time to look at a term loan either from a bank or from a loan crowdfunding platform. While they may take a little longer to get compared to just using a credit card, these lower interest loans that you’re working to repay over years are the go-to way of growing a business.
Business credit cards are for expenses, not debt service
While credit cards can help your business whether its natural ups and downs, those high APRs can also lead to a slippery slope. If business is doing well yet your profits aren’t where you want them to be, it might be a good idea to look at how much of your revenue is going towards repaying credit card debt. If you’re in this position, you might be interested in finding a way out.
You might have heard that sometimes people may use a business credit card with a zero percent APR to pay off other business credit cards, folks in the industry call this a balance transfer. While this may work in some cases, you do want to be mindful of two things. First, there may be balance transfer fees that a credit card company may charge you for transferring your old credit card debt to a new card. And second, balance transfers are a band-aid solution. It may be helpful to explore opportunities to refinance business credit cards with a term loan.
Used on the right things, a business credit card can help you run a professional business operation and earn a few reward points along the way. We hope you keep the three rules of thumb in mind when you’re making use of one of the fastest sources of capital at your disposal.
If you’re looking to professionalize your business by removing personal debts from your business card, expand at a reasonable interest rate, or refinance business credit card debt, let’s help you get on the right track. Sign up below for more information