If you are a business owner, there are dozens of reasons to have a credit card. For one thing, they are a great way to keep an eye on all your business expenses in one place. They also provide opportunities to earn rewards or points on purchases you would make anyway. Not to mention, they may be an superb option for funding your enterprise, especially if you’re in the startup period and can not yet be eligible for a small business loan.
But one thing many small business owners get incorrect is putting all their business expenses on a personal credit card. While personal and business credit cards might function the exact same manner (in terms of how you use them), there are some critical differences that set them apart. Here are the most essential differences between a private and company credit card and the latter must definitely maintain the rear pocket of every company owner.
Higher credit limits to business credit cards.
You read that right: you can typically receive a far higher limit using a business credit card than using a private one. This is because businesses, in virtually all industries, have more expenses than an individual person ever would. In addition they have more capital coming in than individual people, therefore it makes sense they’d have more spending power.
That greater limit can be invaluable to your business for many reasons. To begin with, you’re going to have to make some huge purchases as a business operator, and putting them on a business credit card is a great way to give yourself some short-term financing.
For another, a high credit limit means a better opportunity to build your business credit rating. One of the important factors for deciding your business credit rating is the credit utilization rate — the proportion of your available credit that you’ve consumed, on average.
A wholesome credit use rate is anything under 30 percent. So, if you have a credit limit of $10,000, you merely wish to owe up to $3,000 at one time. The higher your credit limitation, the easier it’ll be to maintain your spending well under the desirable credit utilization rate, which will, in turn, help build your business credit rating — something which is going to be crucial for the future of your business.
It impacts business credit and personal credit.
Utilizing a company credit card is quite vital in establishing your business credit score, which will be vital in assisting you to qualify for other forms of financing down online. However, before leaping into using a company credit card, it is important to understand just how it affects both your business and personal credit.
Though your own personal credit card use will only affect your personal credit rating, the way you use your business credit card will influence both your business credit score andyour credit rating. This is because most business charge cards need a personal guarantee. This provides your business credit card business the security of knowing you’re personally responsible for paying off your business credit card debt when something should happen and your company can’t insure it.
Because of this inevitable intertwining of your company and personal history, company credit card companies typically look over your own credit score as part of your program. Some company charge card companies report credit card activity just to business credit bureaus, while others report to consumer credit bureaus as well.
In case you’ve got a business credit card but are uncertain which bureaus your issuer reports to, ask them to find out. Do the same when deciding which business credit card to use for. It may not affect your choice, but it is worth it to be fully educated.
Business cards aren’t as protected.
Consumer protection laws, like the Credit Card Act of 2009, also make it so that personal charge card activity is closely monitored and controlled. However, the identical kind of advocacy that is present for consumers does not so much apply to companies.
This usually means your small business credit card issuer may apply higher late fees than you would receive with a personal credit card should you skip a payment. Additionally, your business credit card company might throw more curveballs your way than you are ready for, like a sudden increase in your APR..
Obviously, you may not need to worry — many company credit card companies issue the same protections to business owners as to customers simply as good practice. But it’s crucial that you spend carefully, closely track the action on your small business credit card, and read all of the fine print before applying for a business credit card or accepting a deal for you personally.
Rewards applications built for business owners.
One of the biggest reasons people use credit cards these days is to make rewards, in the form of money back or points which may be used for everything from customer purchases to journey. Private credit cards often have great rewards applications, but if you are a company owner, then you are going to need the perks that are specifically geared towards business.
For instance, your organization credit card might award the most points in paying categories that are typical of business owners, for example computer applications, advertising spend, and office equipment. Private credit cards, on the other hand, typically award the main points for spending in groups like restaurants, gasoline or groceries. There are plenty of travel benefits for the business and personal credit cards depending on the rewards programs.
If you are going to make points, you may as well earn in the categories where you invest the most. A company credit card will be put up much better to reward you for company spending.
No matter whether you’re a business owner with dozens of employees or merely a sole proprietorif you are regularly making business purchases, then you need to have a credit card. Just understand what you’re getting into — such as not being shielded by the very same legislation that help consumers.
A business credit card can help you build business credit and reward you for purchases you would be making anyway. If that’s not a wise business move, what is?