I didn't have much in terms of financial reserves when I first started my business, and it was difficult to find a lender because of my sparse credit history. Ultimately, I ended up using my personal credit cards to pay for my company's online advertising.
Using credit was a no-brainer for me because my revenue exceeded my marketing costs. I knew the cards would be paid off within the month. But, for businesses with inconsistent revenue, using credit cards can be a risky play. You could end up jeopardizing your personal and business credit scores and paying a lot in interest.
For businesses with a fluctuating sales cycle, depending on a credit card can be a high-risk venture if they don't plan correctly. Others might be unaware of the benefits of utilizing a card or they might be too intimidated by the potential risk factors. But there are cases in which using a credit card makes sense and can benefit your company.
How To Select A Business Credit Card
I've always been scrappy when it comes to using my business credit cards. Carefully selecting a credit agreement with the right attributes can help a business stay financially solvent, and it can even provide some extra perks.
First, make sure to evaluate the interest rates and introductory periods. For example, it can be useful to know whether the card has an introductory period for a zero interest annual percent rate (APR) in addition to its normal interest rate. If you know your business has a short window to get up and running and a credit card is your only funding option, you might want to go with a card that delays high interest charges. This limits your debt to actual expenses while you work to pay down your balance.
It's also important to watch out for annual fees. Some cards have very low interest rates but might require you to pay an annual fee. Sometimes, though, it can be beneficial to pay the fee in order to get that low rate. The savings of a low monthly APR could very well pay for the annual fee.
Cash-back rewards programs can also be hidden gems for businesses to utilize. We earned a lot of points quickly when we used a rewards card to pay for our operating expenses. That way, when we moved into a commercial office space, we were able to use our points to pay for new furniture.
Carefully comparing these factors between credit offers upfront can save you money and reduce your risk once you start using credit. And, because of rewards cards and delayed interest, credit is usually a better strategy than cash.
When To Use A Business Credit Card
I use credit cards in several ways to make my business run smoothly and capitalize on credit rewards. Consider these strategies if you're thinking about using a credit card for your business:
1. Cash in on recurring expenses.
Every business has recurring bills -- why not use a card to pay them and earn some points along the way? When I was starting out, I set up my personal credit card to pay all of my recurring charges, like advertising and domain registrations. This allowed me to focus on my real work instead of being distracted by paying my bills. And, I never missed a payment for bills that were vital to my business staying open.
2. Travel smartly.
Check out whether your preferred airline offers its own credit card rewards program. You can earn flights, hotel stays and other travel perks. Some airlines allow you to even transfer points to other travelers. My wife and I work together, and when I travel for meetings, it can be helpful to have her with me. When I use my points to pay for her flights, I know that I'm getting the help I need and the business is not incurring another expense. Plus, it gives us a rare getaway together.
3. Reward with rewards.
I have also used points to pay for employee perks or pay off remaining balances with my corporate card. One year, for example, we had enough points to treat employees to a nice dinner and present each with an additional gift card. We built goodwill among our team without spending a significant amount of money. If you choose this route, just make sure you know when the points expire so you can cash them in on time.
From travel perks to free office furniture, I’ve been able to fund my startup and stretch dollars further than a cash-only strategy allows. If your business is still avoiding credit cards, try re-examining your cash flow for potential credit reward payoffs. Developing a savvy strategy to understand credit agreements -- and perks -- can offer clear financial benefits for responsible users.
