Financial experts and credit industry specialists say that business credit cards can provide entrepreneurs much needed advantage in certain circumstances. According to analysts, many small businesses often fail because of mounting credit debts. Recent studies suggest that higher debts can mean a higher probability that a startup can fail in its first few years. Experts say that mismanagement of credit cards can result in too many expenses and too little profit to pay off debt.
Many business experts advise matching the credit term of business credit cards to the term of the planned business venture or obligation. They explain that this can help cardholders avoid higher interest that would only eat away at their profits. Entrepreneurs should also take notice of the interest rate to see if they will be able to pay off their debts in time and still make substantial profit.
According to credit industry sources, most business credit cards offer a 30-day window for new clients to use their new cards without incurring high interest. This particular feature can be of great help to startups looking for ways to finance their operations or new plans that have a term of less than 30 days. Experts say that this advantage essentially gives cardholders leeway to transact using their cards without having to pay off higher interest.
Financial analysts point out that most expenses that fall under the 30-day category would be inventory, advertising or marketing, transportation, utilities, and rent. Paying for these expenses using credit cards during the 30-day window can help business owners avoid incurring hefty penalties and more credit debt. However, experts caution against becoming too complacent. They add that startups should pay off debts as soon as possible to avoid negative entries in credit histories. Having a poor credit past can severely limit the chances of a new business acquiring new sources of finance.
At the same time, business owners must avoid using credit cards to pay for long-term expenses like IT equipment or services, vehicles, or other equipment. These items often have long service lives and paying for them using credit cards can result in higher payments over time due to increasing interest rates. Financial analysts say that fixed-term loans would be better for this kind of expenses. Business owners must also avoid terms that are longer than the actual service life of the items they have bought.