Although Business Credit Cards Emphasize Their Many Benefits To Small Business Owners Such As Record Keeping, Rebates On Business Expenses, And Travel Related Perks, There Are Also Some Potential Pitfalls Related To Using A Business Credit Card For Small Business Owners

Category: Finance, Credit.

Although business credit cards emphasize their many benefits to small business owners such as record keeping, rebates on business expenses, and travel related perks, there are also some potential pitfalls related to using a business credit card for small business owners. However, when there is very little or no cash available to a business owner, the potential to abuse credit cards is great.

Below are a few common risks associated with using a business credit card: Potential for Abuse: Many business owners find the possibility of instantly funding their start up business with a credit card to be very appealing. During a business start up, an entrepreneur usually has difficulty obtaining loans or other ways of financing their business, and they turn to credit cards to purchase the items needed. Therefore, they stay in debt, adding financial burden to the new business. As with many small business start ups, it sometimes takes several years to begin to see a profit. High Interest Rates: Business credit cards, like other credit cards, often charge high interest rates. This occurs most frequently with cards that offer low introductory rates.

The accumulation of these interest rates when the card is not paid off monthly can add a large amount to business expenses. Card holders may not be aware of the amount this rate will increase after the introductory period ends. Risk to Reputation: Just as with personal credit cards, if business credit cards are not used responsibly and carefully they can lead a new business into a large amount of debt as well as damage the reputation of the business by lowering it's credit score. Because of this, and due to low minimum payments, business credit cards may take longer than expected to pay off completely. This can make it even more difficult to get credit or loans with suppliers in the future. New businesses can be very expensive and the cost of doing business can be very high.

It can even put an owner out of business. However, with effective and careful credit card management and careful planning when choosing a business credit card, most of the downsides of business credit cards can be controlled or avoided altogether. Business lines of credit usually have more flexible and also more favorable financing terms. Using a business line of credit rather than a credit card is the best way to avoid many of these pitfalls.