What a Start-up Business Owner Should Know about Credit Cards
When you are in the start-up phase of your business, unless you are bootstrapping your business or using advance payments from customers, there is always a need for funds. In moments when there is a need for quick cash in your business, entrepreneurs are quick to fill out credit card applications, without taking a look at some of the aspects of that card that can come back to haunt them later. Before you sign up for any credit card for your business, here are some things you need to know
Personal Credit Score
Your personal Credit Can affect your eligibility- Entrepreneurs tend to make the mistake and believe when applying for credit cards, only the business credit is looked at. However, this is not the case, especially with a start up that may not have any business credit history. Ensure that your personal credit is good and that the credit bureaus have the correct information. If you have bad credit, start working to improve it. And when applying for loans or credit cards look for sub prime / bad credit lenders.
Review Rates / Terms / Rewards Offered
You need to understand the interest rate- different credit cards have different rates of interest, also depending on your credit score the rate can be adjusted. There are different factors influencing the rate you get such as, current financial situation (rarely do they ask for documentation, but if you tell them you make over $100K a year, be prepared to prove it!) your credit score, and your time in business. As a start up get into the habit of asking each lender if they work with a start up business. There are some credit cards that just like bank loans, require several years in time in business. Some credit cards also offer cash back incentives as well as other rewards programs to get people to sign up . However, before doing so, one must take a look the rate of interest, fees associated with it and judge if the reward offered will really benefit your business.
Personal Liability For Business Credit Card Purchases
As the business owner, you are liable for all debt- This will however depend on whether or not the card offers certain type of liability coverage, whether commercial liability or Joint and several. Depending on which type of coverage you have, you may be liable for all debt personally, however, in cases such as commercial liability, the business is liable for all debt and not you as an individual.
You are not required to pay off in full- As a credit card holder, you can choose to pay off in full or make partial payments. You are not required to pay off in full and the credit card can be revolving. One thing you need to be very mindful of is, you should not make only minimum payments, that’s how you build up an excessive amount of credit card debt. Credit card debt is one of the most common causes for bankruptcy. One exception are some of the American Express Business credit cards. Some of them do require that you pay them off in full each month.
Employee Credit Cards
Credit cards can be given to employers and employees- As an entrepreneur, you can get a business card issued to you as well as your employees. This doesn’t have to be different account for the business, you an get different cards issued under the same business account. This cards an be customized to each employee and you can determine the spending limit for each one as well as places they can make purchases. This gives you a level of control over what happens with the card and on the account.
As previously stated, a business credit card is a great way to get a quick injection of cash into your business, however, you need to ensure that you are aware as to what you are getting into and plan accordingly.
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Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.