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When starting a business, a huge amount of investment is required. Setting up a small business requires expenses that sums up to a huge capital. Entrepreneurs take loans to meet these expenses. Some businessmen apply for business credit cards to get hold of cash for establishing their business. The business credit cards have certain drawbacks, which if not controlled from the start might ruin a business. The drawbacks can be discussed under the following points:
- It is mandatory for most of the business credit card companies that the owner of the business signs a personal liability agreement for the first year before the business gets established. This is when the professional and financial finances get mixed up even before their business starts off.
- The liability agreement makes the business owner responsible for any kind of default on part of the business. For example, if the loan taken in the company name is not paid back in predetermined installments then the business owner will stand liable for the default and will have to pay off a hefty sum as penalty from his personal account. This makes a dent in his personal bank account.
- The business credit cards attract very high interest rates than other personal cards. Since setting up a business involves huge amount of money so the bank finds all possible ways to earn the loan amount from the businessman through the maximum possible interest rates.
Steps to manage the drawbacks
- Register the business with a credit bureau that can help to establish a business credit score. An established business credit score will help to forego any personal liability agreement that might take place due to a late payment or repayment default.
- The business should avoid taking any further heavy debts and try to maintain a single business credit account.
- A good credit history will help in decreasing the interest rate charged on the new business to some extent.
- Care should be taken that the business funds taken as credit do not get misused by the employees who might take the liberty to place their personal bills at the expenses of the company.
The last thing that can be done to overcome the drawbacks of a business credit card is to maintain a separate business account through which all business transactions will occur. In case of a liability charged on the business owner, the penalties will get paid from the business account and not the personal account.