Credit Cards for Business

Wednesday, June 13, 2012 at 3:31pm by Site Administrator

What’s At Stake With Business Credit Cards?



Business credit cards extend the purchasing power of a company and enable business owners to make the purchases necessary to maintain the business even when funds are tight. In a struggling economy, banks are less willing to extend loans to businesses, especially ones that are just starting out. However, just like any credit card, a business card comes with responsibilities.

The Risks of Business Credit Cards

Business cards often have higher credit limits than consumer credit cards. While this gives a starting business plenty of room to build its foundations and grow, it also places a heavier risk of debt on the card’s owner. It’s very possible for a business owner to rack up substantial debt very quickly. If that debt is not paid off immediately, it will garner high interest rates, leaving the owner of the card in much greater debt than if the funds were obtained through a loan or other means.

When applying for a business credit card, most banks will rely on the applicant’s personal credit. This means that you, as the business owner, are personally responsible for the debts accrued on your business card. Because you will have a much higher credit limit than you otherwise would for a card, you can quickly end up in deep financial trouble.

Beyond lingering debt, a second problem of business credit cards is the effect they have on the company’s credit itself. Once a card is taken out in a company’s name, that business begins earning credit in the same way that a consumer does. If that credit is bad, it will affect all sorts of future financial transactions the company may have, from taking out loans to getting utility bills in its name. A company’s finances dictate the way it’s viewed by others, and companies with poor credit may be viewed as irresponsible, causing them to lose business.

It takes a long time to build business credit, so rebuilding it will take time and effort on behalf of the business owner. It’s much easier to maintain good credit than it is to repair problems once they’ve begun, and the implications of bad credit are deep and far-reaching for the company itself as well as the business’s owner.

What Happens if the Business Folds?

Some businesses qualify for credit on their own merits. Even if a company already has substantial credit, though, the business owner is responsible for paying off any debts that the company accrues. If the business goes under, the owner must still pay back the company’s credit card and any other debts associated with it. Credit card debt does not die with the company, and the lender can sue for the lost funds if the business owner doesn’t pay up.

This makes it substantially more difficult to obtain credit in the future for any other business enterprises. It also puts financial strain on a business owner who may already be suffering due to the loss of a business’s income. Coupled with any other debts the business may have left behind, the owner may take a long time to recover.

Because of the high risks associated with obtaining a company credit card, it’s important to consider all of the implications before submitting an application. Considering the failure rate of small businesses, the cost of debt can be disastrous for the consumer.

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