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[03:54:12 AM Monday, March 31, 2008]
A Small Business Credit Card Can Make Your Business, but at What Risk?Getting a small business established, the question of funding arises. At this point, evaluating the risks is the major and perhaps, most difficult thing to do. Looking for a source of the start-up capital, a would-be entrepreneur has several ways to go: to borrow money from relatives and friends, apply for a loan at a bank or get a credit card for the special purpose. As compared to the first two, a credit card seems to be much less reliable and too risky, but statistics shows more and more new businesses choose to apply for a credit card as initial capital and payment tool. They know about the potential benefits but seem to be unaware of the risk. A small business credit card has its faithful supporters and contestants whose views are extremely different from each other. Some say that business credit cards are the key tool to take one's business off the ground and others - that it is a fair way to loosing investments. Let's see whose standpoint is closer to the truth. Almost any beginning business knows about the benefits, otherwise they wouldn't apply for the plastic. First, it is an efficient management and tracking tool of the company's expenses. All the employee's expenditures will be reflected on a single credit card statement, sparing you the necessity of rummaging in numerous statements and invoices. Second, a business credit card allows the business owner to control the employee's expenses, keeping them from overspending. With the right to fix the credit limit for each of the employees, the manager maintains the healthy financial situation in the business and cultivates discipline. Then, almost all business offers come with enticing credit card rewards programs, cash back and great discounts that are of most benefit when it comes to making business-related purchases. This means you can not only save a good deal on business supplies but also earn points redeemable for retail items, entertainment and even dining rewards. And of course, a business plastic gives you the necessary capital to get started. Now, who knows about the risks? Let's see if they outweigh the benefits. First, no matter what the purpose is, it is a credit card all the same, which means you borrow money and have to repay it when due. Those, who forget this principle or ignore it, are sure to end up in gross debt one day. It will blow up both, the company and the manager's credit score and rating. Why the manager? This is where the greatest drawback lies. The business owner himself signs up for the card, so he is the only one responsible for all the accounts. In case of defaults or any errors in the credit report, the creditor will come after the business owner, whose name is in the credit card agreement, rather than after the employee. So, a small business credit card puts your own payment history and scores at big risk. Your small business card management will be reflected in your personal credit report until your business establishes its own credit history and it can take quite a period of time. This is the greatest but may be the only risk that a business card hides. On a large scale it is just like a typical consumer credit card and so requires the fulfillment of the basic credit card principles. If you do, its benefits will outweigh the risk, giving your business a good start and a solid foundation. Take some time for consideration and only on sound decision do credit your business capital with a plastic card. |
