Posted on Wednesday, 16th December 2009 by admin
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Nowadays credit cards are mostly preferred by the small business owners that are in search for short-term loans.
Unluckily, during these days the tightening credit environment has also led to tighter terms for business credit cards, and the standards for approval for new credit cards have become more tough.
If you’re a small business owner, then what are those ways by which you can take advantage of the benefits of credit cards and at the same time avoid their pitfalls?
Tips for using Business Credit Cards
Below I have given nine tips to use business credit cards in a tight economy.
1. Keep your credit score high.
Card issuers will use your personal credit score when they are evaluating your credit card application, unless your business already has a long established credit history.
So if you want to get a business card with the best terms, then you need to keep your credit score as high as possible.
2. Use a bank with which you have an established relationship.
Those banks with which you already have an account will be more open to issuing you a credit card. There are numerous small, local banks and credit unions that issue business credit cards.
You could possibly get a low interest credit card by establishing a personal relationship with these. If the bank with which you are currently having an account doesn’t issue a credit card, then you should open an account with the one that does.
3. Keep different cards for different purposes.
You should use credit cards that are having a low interest balance transfer APR for credit card debt that you carry forward. You should use a different card for purchases which has to be paid off every month.
4. Choose the best deal.
It is not necessary that the best deal is always on a small business credit card. Generally speaking, for all credit card debt you are personally liable, whether it is on personal credit card or a business credit card. So you may choose a personal credit card for business purpose if it offers you a better deal than any other business credit card.
5. Know how much you can afford to put on.
You should incorporate credit cards into your overall financial planning. You should plan that how you have to use your credit card purchases. You should find out that how much you can put on in purchases each month and still pay off in full.
If you have decided that you have to take on credit card debt, then you have to project that how much you can take on and still pay off before that the low interest expires.
6. Know the difference between good debt and bad credit card debt.
You have to make a sensible decision about the debt you take on. Credit card debt that support the business finances while waiting for accounts receivables is perfectly acceptable debt. Same is the case of the debt that helps to increase the business income, such as a short term bridge loan for purchasing new equipment.
Accumulating credit card debt just in order to fills in gaps between income and expenses is considered as a bad debt.
7. Always Keep a back-up in place.
Don’t take any risks for your card debt. Avoid getting trapped by changing credit card terms. You should always keep ready a backup plan in place in case if your minimum payment double, interest rate increase, or credit limit get cut.
To avoid any such situations you should always have one or several unused credit cards available as back-up, or you should search for other financing alternatives, such as account receivable financing.
8. Take wise decisions while managing your business credit.
It is a basic rule of thumb for all business owners that they should keep personal expenses separate from business expenses, and of course this applies to small business credit cards as well.
Doing this you can not only keep your accounting more clean for tax purposes, but other than that it also allows you to use the extra services that come along with business credit cards in order to help you track your monthly business expenses and employee expenditures.
9. Build a communication with your card issuer.
If you have planned to make a big balance transfer, which would possibly bring your card close to the credit limit, then you should inform your card issuer that what you’re doing, for which purpose you’re taking out the balance transfer, and when you have planned to pay it off.
Otherwise, if you would have a high balance then this could create an alarming situation to card issuers that your business might not be going so well. Possibly this would in turn force them to raise the minimum required payment, lower your credit limit, or even raise the interest rate on the card.
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Tags: account receivable financing, bad debt, business credit cards, card issuer, credit card companies, credit card debt, Credit Cards, credit history, credit limit, credit score, credit unions, low interest balance transfer APR, low interest credit card, personal credit card, short-term loans, small business owners
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