We’ve all seen the commercials. Upbeat, classic rock plays in the background as a small business owner uses their business credit card to blissfully run and grow their company. All you need is a piece of plastic and a dream, right?
Beyond the dramatization, a business credit card actually can make it easier to manage a business—as long as you use it correctly.
Let’s look at the advantages of using a business credit card, along with tactics for getting the most out of yours (and feel free to spin up some Doobie Brothers on your iTunes).
Establishing business credit
Like your personal credit, your company has its own separate business credit profile. This information impacts your chances of getting a loan, supplier trade terms and more. If you have a limited credit history, opening a business credit card can be a good place to start.
Some business owners shy away from using a credit card because they believe applying will hurt only their credit score. This isn’t true! As long as you pay on time and keep your balances low, these accounts will actually increase your business score over time.
According to the Small Business Association, banks charge businesses with good credit ratings half as much interest on credit cards as those with poor credit (9 percent versus 18 percent.) As you build a stronger business credit history, you should be able to negotiate lower interest rates on your cards.Don't be afraid to ask.
Separating your finances
Too often, business owners use their personal credit cards to take care of business expenses. This can be tricky for accounting, strain your personal credit history and put your personal assets at risk.
A business credit card is a separate line of credit for your company, so you don't have to worry about your personal finances muddling what's on the books for your business. Just verify that the card you apply for reports your payment history to the business credit bureaus, not to the consumer bureaus. This happens sometimes, even though it’s a “business” card.
Higher spending limits
Your company's day-to-day costs are likely more expensive than your personal ones. If you're using a personal card, it can be easy to exhaust your credit limit while attempting to purchase supplies, materials and other items that are essential to running your business.
Business credit cards give you access to the larger amounts of money - tens of thousands of dollars for some cards - that you'll need to keep your company humming along.
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Smooth out cash flow
Most small businesses will experience a slow period from time-to-time. Having a plan to help manage cash flow will definitely lower your stress levels, and a business credit card should be a part of that plan. Use it to charge some of your expenses and pay them back over time as your revenue stream improves.
Insider tip: If times are tough, take the maximum amount of time allotted (often 30 or 60 days) to pay your suppliers. When paying, use your business credit card. Your card bill won’t be due for another 30 days, so you’ve doubled your payment period. This gives you extra time to collect receivables without impacting day-to-day operations.
Just be sure to only use this trick sparingly. Ideally, you want to pay off suppliers before the due date to help boost your business credit scores.
Reward program incentives
Just as credit card companies have reward programs for consumers, they also have perks for business cardholders. These benefits can include cash back on purchases and travel miles, which can be especially advantageous if you travel often. Ideally, you’ll use these savings to reinvest in your business.