This article was published on banking.about.com titled Business Credit Card Facts. The ‘facts’ listed might be true in some cases, however simply making sure your business is set up the way lenders want to see a company will prevent you from having to sign a personal guarantee.
Using a business credit card can help you manage your business and build credibility. Because it’s an important move, make sure you know the challenges. Let’s review key points you’ll need to know before you apply for a business credit card.
Business Credit Cards and Personal Credit
If your business is new, you don’t have a history of using credit or paying suppliers. To get a business credit card, you may need to personally guarantee the loan. Your personal credit will be important in the approval decision, so you need good credit.
What is Credit?
A business credit card will have the business name on it, so you’ll appear legitimate. However, without collateral or a history of business borrowing, the business credit card is intertwined with your personal credit.
You’re Not a Consumer
Business credit cards may carry more risk than you’re used to. As a consumer, you get protection (within limits) against unauthorized spending and changes to account terms. Unfortunately, business credit card holders don’t enjoy as much protection.
You’ll need to watch the account closely to limit your risk. You should also be prepared to find alternative credit sources.
Cash Flow, Not Capital
A business credit card should be no more than a tool to manage cash flow. Some people start businesses with nothing more than “a credit card and a dream.” This is a risky way to use a business credit card.
If you use your card for long term funding needs and carry a balance, things better work out (and they might). Interest rates on business credit cards are higher than other funding sources, so you should only use cards after other options are eliminated. Consider lines of credit, peer to peer lending, and any other loan you can get for longer term capital needs.
No Personal Use
Only use your business credit card for legitimate business purposes. If you use it for personal use, several things can happen:
You may open yourself up to more personal liability, even if you’re incorporated
It’s harder to track expenses
You might not be able to build business credit (and move away from using your personal credit)