The Smart Way to Use a Credit Card For Your Business

The conventional wisdom says that it’s a terrible idea, but a survey done last year by the Small Business Association found that nearly 60 percent of small businesses used credit cards to meet their capital needs. That’s understandable, given the fact that loans through banks and the SBA have become hard to get. But credit-card financing can be hard to understand — and can get ghastly expensive. Have you really taken the time to sit down and read the “Terms of Use” fine print before accepting that business Visa or MasterCard offer?

Using credit cards as a limited-scale financing technique can be successful, but use these tips to make sure you don’t go into debt — or bankruptcy.

  • Don’t mingle business with personal expenses. Mixing your business and personal transactions on the same credit card can create potential tax and money-management problems down the road. By keeping all your business charges on your business credit card, you can more easily track your corporate expenditures and reduce headaches come tax time.
  • Do use your card wisely. One benefit of a credit card is the typical 30-day, no-interest grace period. You can use that time to improve your cash flow, but it’s essential that you pay off the balance before that grace period ends, or else that “loan” will quickly turn into a high-interest debt.
  • Don’t go card-hopping. Signing up for multiple credit cards to take advantage of deals can have a negative impact on your credit score, making it harder for you to get business loans and lines of credit down the road.
  • Do look at your credit score. Before you apply for any credit card, make sure beforehand that you’ll even qualify for a good rate. A good score is above 620. You can get a free credit report every year from each of the three reporting agencies: Experian, Equifax, and Transunion, although you’ll have to pay a small fee to get your actual score number.
  • Don’t do cash advances. These can incur multiple fees and costs, and usually do not qualify for the interest-free grace period. Opt for your business debit card when you need immediate funds.
  • Do pay on time. Late fees and high interest rates will quickly erase the benefits of having a small-business credit card. Be a responsible business owner and pay off your balance every month.

About Vanessa Richardson

Vanessa is a freelance writer in San Francisco who writes about small business and personal finance. She has been a staff writer for Money and Red Herring, and now writes frequently for sites like Bankrate, Entrepreneur, MSNBC and Money.
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Make a list of all the bills and expenses accrued by your business; it may not be long, and that's great. The less overhead you are dealing with, the better, and working from a home office is a great way to keep the overhead down. There are inevitable costs, however, whether it is internet service, computer repairs, office supplies, long-distance charges, or specialized supplies for the type of business you run. If your work involves a tangible product, you'll have inventory costs to think about.


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