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[Friday, November 09, 2007]
When Small Businesses Apply for Credit Cards
When a consumer applies for a low interest rate credit card, he or she probably plans to make everyday purchases on it and carry some balance from month to month. When a student signs up for a credit card deal at campus, he or she is evidently planning to gain financial independence and start their credit file. If a small business owner is eager to get a credit card to run expenses, it means he/she doesn't qualify for traditional bank business loan.
Many businesses have the opinion that, on the other side, it is faster and not that troublesome to get approved for a credit card than get a loan, but all of them seem to be only little aware of the reverse side of using credit cards for business purposes.
We have a number of examples of small entrepreneurs who took out a small business credit card but did not succeed in paying off the debt in a year. As a result, they not only lost business but had to borrow money from friends and relatives to avoid debt collectors and bankruptcy.
Credit companies know it very well that it is much easier for a customer to be trapped by a credit card than a traditional loan. So, they do not spare means to extend their customer base through offering credit cards specially geared toward business-related purposes.
If you are a beginning undertaker, you should know what you need money for - sometimes you have to pay for just everything: for PR-making, for the product developing and manufacturing, taxes, health insurance and what not.
And when you are suddenly denied a bank loan because of the lack of business history, you think about getting an appropriate credit card to cover your expenses. What are they? You may find yourself at a loss, being offered such enticing and at first sight beneficial products as Advanta Platinum Business Card or Discover Business Card or Chase Platinum Business Card, all offering low APRs and up to 5% cash back rewards.
Well, suchlike credit cards look by all means more attractive than a traditional loan which doesn't normally imply any rewards or additional programs. So, you sign up and the revolving credit does its ruinous part.
It has been found that most beginners do not know which card is best for their individual situation and how to use it most effectively, while credit card issuers are realizing their major task - make revenues out of your ignorance.
A credit company is very unlikely to give you sound advice on the reasonable credit card use, so any small business, especially a beginner, is strongly advised to have a banker or any knowledgeable and impartial adviser from another company to give you assistance when needed.
As things are today, bank loans are harder and harder to get, so credit cards are very often the only tool to get started or make an additional funding of business. Are you thinking to apply for credit card to give your business a jump-start?
Remember some very simple rules:
- Use your business credit card only for most necessary business-related items.
- Never exceed your credit card limit as it will lead to over-the-limit fees.
- Remember that business credit card debt belongs to the category of bad debt and it is not appreciated by the lender when it remains unpaid.
- Try to pay back your debt as soon as in a year, otherwise your business will work for your credit card and not the other way round.
- Never carry a balance as the increased interest rates will reduce your financial planning to zero.
And one more thing for businesses, when taking a business credit card, you have to be 100% sure that you have means enough to repay the debt and your aim is only to make a good start but not to exist on the plastic throughout the whole enterprise.
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