If you are an aspiring entrepreneur or already have your own business, there is a good chance that you will need to rely on a credit card at some point in time. Despite their high interest rates, there are several reasons why credit cards can help your business grow (or get you out of a tight situation). For many small businesses, it is the only way they can manage expansion without getting tied up in the headache of borrowing money from a bank.
What’s the difference between a credit card and a small business loan?
First, a credit card is a line of credit that provides a borrower (you) with access to cash flow on a temporary basis. For example, if you go out and purchase $1,000 worth of goods and services using your credit card, the creditor will most likely extend the line of credit so that you can continue making purchases through your balance. Therefore, rather than paying off the $1,000 that you owe for your purchase today, you will pay only the monthly minimum amount due (the one which is usually calculated to be about 3% of the balance). The rest of the balance will remain on your account until fully paid.
Business loans are typically set up as short or long-term loans where the borrower will pay back the original principal amount, along with interest, over a predetermined length of time (short or long). Business Loans can be extremely helpful for start up companies that need to purchase certain equipment.
In both circumstances, whether you’re applying for a business loan or a credit card, your personal credit history will come into play. A credit history is a record of an individual’s or organization’s borrowing and repaying behavior. This includes how regularly they have paid credit card bills, mortgages, car loans, etc. These records are then used by lenders to determine whether or not the person is likely to repay their future debts as agreed before giving them better loan terms at a lower interest rate, or securing a loan at all.
To find out what your credit score is, consider using a free service such as Clearscore.
How can a credit card help grow my business?
One of the most important benefits of a credit card is that they can help to improve cash flow, as well as streamline their accounts payable process. In fact, let’s look at the top three reasons owning a business credit card is beneficial.
They can help improve cash flow
The increase in efficiency and convenience associated with owning a business credit card really pays off in improving your cash flow. With the ability to easily track expenses and monitor spending, you can get an accurate picture of how much money is coming into your company and where it is all going.
They can help bookkeeping less of a headache
A business credit card allows you to consolidate all of your bills and invoices into one manageable payment. With this single payment, you can monitor the due date of each bill, as well as take advantage of discounts offered by payer’s if you pay on time.
PS – if you’re not taking your bookkeeping seriously, you really should and here are 5 reasons why.
They can provide your business with instant access to funds
When there are so many expenses associated with running a business, having access to funds is crucial. A business credit card can give you instant access to funds when you need it. This is particularly useful if one of your biggest suppliers demands a quick payment for the services or products you received from them, and will accept no other form of payment.
You may ask, “What kind of spending limits should I look for?” Unfortunately, this cannot be answered as it varies from bank to bank. You should investigate your options before settling on any one card.
The best source of information is the bank that you are interested in doing business with. Banks will have an array of credit cards to choose from based on your company’s size and revenue.
The fact that many small businesses use credit cards as a way to manage their companies is proof that they are an effective tool for the job. There is no set limit when it comes to how much credit card debt can be used to finance a small business, but different banks will have varying limits in place.
All you need to do is find the right bank and make sure you meet its requirements before signing any agreements.
A credit card can be a very useful tool for any business. They are not just convenient, but can also provide the capital you need to expand your company.
Credit cards have so many features that small businesses can take advantage of when growing their companies. If you find a bank that offers a good card with the right amount of spending limits and interest rates, it can be very easy to use your card for daily operations.
The only way you will find out if a credit card is right for your company is by doing some research and looking into all of your options. The more information you have the better chance you stand at finding the perfect bank that has something to offer you. But remember, even if you have found the perfect bank, you should still watch out for pitfalls.
In conclusion, a credit card can be an excellent tool for small businesses if they find a bank that is right for their needs and provides enough spending limits and interest rates. As long as a business does their research, they should have no problems finding a bank with something they can use.