Financing small and medium-sized businesses can be approached from various directions. It's important to understand what the market has to offer and how to make the most of those trades. This early stage in a company's development is critical to its long-term success.
Credit cards are one of the most popular ways to finance small businesses, but there are some caveats that you should consider carefully. Most importantly, this is not exactly the same thing as a small business loan and there are some different implications that you need to be aware of.
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Basic usage of corporate credit cards
Using a credit card to finance your small business is no different than a regular loan. You need to carefully consider your repayment ability and control your balance.
However, credit cards can provide even more liquid resources. Easily access small amounts of cash when you need it, so you can keep your balance positive while you wait for your payment.
If some of our customers' payments are delayed, our future operations may be affected. But if you can cover the negative balance with your credit card, you don't have to.
In fact, most modern businesses rely heavily on permanently open lines of credit. This applies to almost all sectors of the market, including large companies. With that in mind, you should never be afraid to rely on a credit line to supplement your cash flow. In fact, in many cases this may be your best option.
Personal and business credit cards
Technically, you don't need a business credit card to run a small business. You can also use your personal credit card to handle business expenses, but you may be missing out on potential financial benefits for your business.
One of the biggest benefits of using a business credit card is that it helps you build business credit. Using a personal credit card for business expenses builds personal credit, not business credit. Business credit is an important part of a company's overall financial health. Without it, it can be difficult to obtain a loan.
Another important aspect to consider is the economic benefits. When you sign up for and use a business credit card, you receive financial perks and perks associated with that card. These benefits include rewards programs and free cards when you give your employees the financial power of a business credit card.
Points to note when using credit cards
The market is full of business credit card offers, so there's no need to rush to apply for the first one you see. Instead, take your time and compare them properly. Pay particular attention to the benefits offered and consider whether they will benefit your business.
Check with different issuers to get a complete picture of what features each card can offer. This is especially true if you plan to open multiple lines of credit. Here are six additional tips for using credit cards to finance your business.
1. Negotiate for better terms.
Credit card deals are almost always negotiable, and you can often get better terms if you have good credit. If you use a personal credit card, keep an eye on your credit score. This can be an important factor in negotiating better terms for your card, and may also unlock special deals that aren't normally available.
Prepare a list of points and conditions you want to discuss when speaking with your credit card issuer. If you can point out specific information about growing your business, you should definitely bring it up.
2. Make payments on time.
When using credit cards for your business needs, the importance of paying on time cannot be overstated. Before charging any expenses to your card, you should be completely sure that you can comfortably cover the balance. If you don't, your company will face serious debt problems, which could be serious enough to bring the entire business to a standstill.
Create a budget to ensure your business operates within its means. Budgeting tools in accounting software can help you track the flow of your finances and remind you when payments are due. Never lose sight of the financial picture, because the entire future of your company is tied to its success here. [Read related article: The Best Accounting and Invoice-Generating Software for 2024]
3. Fix the problem immediately.
No matter what happens, there will always be problems with your finances. And it actually happens quite often. You need to get used to this fact and immediately start preparing to deal with the problem. Otherwise, the problem will get worse and you will feel stuck.
Whether it's from the business side or your own personal finances, it doesn't matter. The important thing is that you need to stay on top of these issues and resolve them as soon as possible.
If you need a credit card to fund a big purchase, look for one that offers a 0% initial APR. During the introductory period, you can continue to hold your balance without accruing interest. To learn more about financing possibilities, check out our guide to the best business loans and financing options.
4. Always keep an eye out for better deals.
Even if you're happy with your current credit card, never underestimate the market's potential to surprise you with more attractive deals. Credit card companies are always looking to attract new customers, and you'll find tons of great deals to browse, even if you haven't checked in a while.
To ensure you get a good deal, set aside some time to see what's available. This is just part of running your business properly. Staying on top of current market trends applies not only to your individual market, but also to the financial world as a whole.
5. Track usage over time.
We already touched on this above, but it's important to reiterate. You need to pay attention to your credit card usage habits over time. Don't just trust your intuition on this one. Make sure you use hard data and understand exactly how your finances have changed over time.
There are various tracking tools available that can easily accomplish this task without requiring much brain effort. AI-powered applications are particularly helpful as they can help identify spending and inflow patterns that are not usually so obvious. This data helps you make informed decisions as your business grows.
6. If your situation changes, please contact your credit card company.
Even if things get worse, you need to be open with your credit card company as your financial situation changes. Credit card companies are often much more willing to negotiate than you might expect. They have an active interest in helping you repay because your interests are directly tied to their own.
It may take some time to decide whether using a credit card as a line of credit is the right choice for your small business. Be sure to take the time to understand the terms and benefits of the card you apply for. As long as you can repay the charges on your business credit card in full, you won't have any major financial problems down the road.
Best credit cards to start a business
There are many credit cards to choose from, and your company's financial situation will determine which card is best for you. Keep in mind that your credit score and financial history, both personal and business-related, will be taken into consideration when applying for these cards.
Here are some common business credit card options to consider.
- Capital One Spark 1% Classic: For startups, this is a good credit card option for building credit. The annual fee is $0, unlimited 1% cash back on all business purchases, and flexible access for employees.
- Capital One Spark 1.5% Cash Select: This card is a great option for small business owners who want to take advantage of cashback benefits. Earn unlimited 1.5% cash back benefits on all purchases and receive a one-time $500 bonus when he spends $4,000 within 3 months of account opening. Also, like Spark 1% Classic, there is no annual fee.
- Chase Ink Business Preferred Credit Card: If you want to take advantage of travel rewards and other purchase perks, this card is a great choice for small businesses. A cardholder can earn 100,000 bonus points when he makes $15,000 in purchases in his first three months. She will earn 3x points on her first $150,000 in travel, shipping, internet, cable TV and phone purchases. It also applies to buying ads on social media sites and search engines. However, this card has a $95 annual fee.
Before you start looking for a business credit card, figure out what specific features you're looking for in your card. For example, are you looking to maximize your travel benefits or avoid annual fees? Knowing this information will help you narrow your search and find the right card.
alternative funding sources
You should also consider other options before turning to credit cards as your default option for financing. Typical financing options include:
- Personal savings: Small business owners often leverage personal assets to fund their businesses. This can be a good option if you are just starting your business or if you have a financial emergency.
- Small business financing: The main source of funding for small and medium-sized enterprises is bank loans. Financing is the backbone of many small businesses, and building a good relationship with a local bank can provide your company with a stable financial future.
- Family and friends: Just as they rely on personal funds, small business owners often turn to family and friends for funding. This is especially true in the early days of small businesses.
- Crowdfunding: Instead of raising money through traditional methods, some small business owners choose to create a profile on crowdfunding websites and raise money.
jamie johnson and matt diangelo Contributed to this article.
