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Small businesses have it rough. They have great customers, but those customers are not consistent buyers. Those customers pay their bills, but there may be a lag in time from when the service or product was provided and the time the company actually gets paid.

This lag time in income can cause cash flow problems for the small business since they don’t have the ability to smooth out the ups and downs of income and expenses like the much larger companies have.

During the down times, when cash flow is tight, most small businesses rely on a either a small business loan, which is difficult to obtain, or a credit card.  According to the U.S. Small Business Administration, 65% of small businesses use a credit card but only 50% of the cards used are actually in the name of the business. Instead, the small business owner is using a personal credit card for business purposes. There are several reasons that small business owners should put away the personal credit card and obtain a business credit card.

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Small business loans require a significant amount of time to fill in the paperwork, which is necessary to qualify, and many business owners may opt for a personal credit card thinking a business credit card requires the same amount of paperwork. A business credit card is easy — as easy as applying for a personal credit card.

The business credit card allows access to instant financing and they are great for meeting the short-term needs that occur when cash flow is tight. It also allows access to online stores if the business needs to add to or replace equipment. A business credit card may allow a higher limit on the company’s line of credit and build a credit record for future borrowing.  In addition, many card companies will send a business spending report which makes managing expenses an easier task. And some card companies offer a special rewards program due to the higher spending limits. This may be tied to the frequency of use or the spending amounts of the card.

Mary Fox Luquette

Amy Windsor

As good as a business credit card may be, there are some disadvantages that business owners need to know. The application for the card may be dependent on both the business’s credit history and the owner’s. Most card companies are very willing to issue business credit cards if a combined score is in the upper 600s so it is important to know your score before applying.

Business credit cards do not offer the same protections as a regular credit card. Unexpected hikes in interest rates or sudden changes to the terms on the card may negatively impact the small business so it is important to examine as much information as possible about the card and its terms before signing the credit card application.

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One last concern is who is using the card. The Better Business Bureau is warning businesses of fraudulent purchases from hackers and rogue employees who use the card for items not related to the business purposes it was intended. Monitoring expenditures on the card is a necessity.  

If a business credit card sounds like it would be a good fit for your business, examine the various card companies, know their rates and fees, and understand any penalties that would be imposed for late payments. Typically a business card is paid off each month with no balance going forward. Card companies can charge hefty penalties for non-payment of the debt so it is important to monitor spending and the overall use of the card.    


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