Credit Cards Business

Wednesday, June 13, 2012 at 2:54pm by Site Administrator

Business Credit Cards Help Companies Stay Afloat



The excitement of going into business for yourself is only matched by the stress, and the common knowledge that most new businesses fail during the first four years will only add to worries. Of the third of new businesses that survive past four years, success is attributed to several shared traits. The most important is planning that takes into account emergency situations. Every new owner wants to be successful, but part of staying in business is knowing emergencies can happen and taking the steps beforehand to protect your business.

Business credit cards can play an important role in preparing for and reducing the damage of economic down-turns. Besides establishing a stronger credit score, unsecured business credit provides access to higher maximum limits, better lending terms, and better rewards options versus personal credit cards. They also outperform traditional loans in some ways. Read on to learn more about how a business credit card can help your business stay afloat in troubled water.

Preventing Emergencies with a Stronger Bottom Line

Most cash-flow emergencies can be spotted beforehand by a watchful owner. The reason they take owners by surprise so often is that most owners are focused on the products and/or services being offered instead of accounting and finance. A business credit card makes it easier to handle the accounting side of your business by providing a running tally of all expenses in one place.

When used to pay normal operating costs, a business credit card can also help reduce those costs. This requires paying the bill in full each month to avoid interest charges. Most cards come with a rewards program of some type. You will need to spend some time researching the many programs to find the one best suited for your type of business.

Building Credit for Emergency Situations

While possible to build a respectable credit score using other tactics, a business credit card is an essential factor for pushing your score higher. One of the key factors in your business credit score is the amount of credit currently available via bank credit lines and credit cards. An unsecured business credit card will add a minimum of $50,000 available credit to your total available, and this number may go higher with responsible use over time or additional guarantees from others with a stake in the business.

In emergencies, few people want their business to be supported only by a credit card. After all, they charge above prime rate interest. Having the highest score possible before the worst happens, however, can prevent this situation. Banks are far more likely to offer prime lending to businesses with high credit scores.

Short-term Cash Flow Solutions

In a pinch, credit cards can mean the difference between staying in business or closing the doors for good. Planning is essential, and proper planning will allow owners to assess the long-term viability of the business even in the midst of a crisis. Risk is an inevitable fact of business, but a risk analysis may reveal it is worthwhile to use available credit to overcome what is perceived to be a short-term problem.

An aspect of credit owners need to be aware of is the difference between unsecured and non-recourse credit cards. Unsecured credit for small business is almost always backed by a personal guarantee. Depending on the credit history of the individual, this can yield a maximum limit of between $50,000 and $200,000 with a higher or lower interest rate in the range established by the provider. In case of default, the lender will have access to both business and personal assets for repayment.

A non-recourse card is not associated with personal finances, so the lender can only go after business assets, including inventory and accounts receivable. Predictably, non-recourse cards require a higher credit score, and the maximum limit is negotiated based on income and assets. The interest rate is typically higher, but this type of card is the best to use in a higher-risk situation, such as an emergency threatening the solvency of the business. An important step to accessing non-recourse credit is establishing a history of responsible unsecured credit use.

Business Credit Caveat

When the worst happens and leaves you unable to repay the card provider, it is always best to communicate your problems early. Lenders have many weapons they will use to ensure repayment, but reputable lenders want your business to succeed and continue using the account. Early communication can help your business stay afloat by maintaining good terms with the creditor.

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