Small Business Credit Cards – Should You Use Them or Not?

As an owner of a small business it is quite likely that you would have been at the receiving end of numerous credit card offers for running your business. It is worthwhile to consider the utility of credit cards for obtaining a line of credit and compare it with others available to you. Interestingly, credit cards have already emerged as the single biggest form of finance for small businesses. Credit cards meant for business are extremely convenient way for the business owner to access short term financing to increase the purchasing power of the company. However, a certain amount of care must be exercised because there is a cost associated and various conditions apply.

What Are Small Business Credit Cards?

Credit cards aimed at owners of small businesses are very similar to that for individuals. They allow the business owner access to credit that can be revolved; of course with a set limit and also permit cash withdrawals. The reasons why revolving credit on a credit card is handy are because the limit can be used repeatedly as the dues are cleared off and access to the credit can be enjoyed without providing any collateral.

How Are Credit Cards Different from Lines of Credit?

Many issuers of business credit cards such as market their offerings as alternatives to conventional lines of credit that are available from commercial banks. However, among the key differences between the two are that credit cards have a revolving credit whereas the amount of credit is fixed in a line of credit. This essentially means that with a credit card the amount available keeps on being replenished to the extent the card dues are paid back. With a line of credit, the limit gets exhausted after you use it and the only way to replenish it is to apply to the bank for a fresh line of credit.

However, typically credit card limits are relatively small when compared to a bank’s line of credit and thus are useful for small value purchases and not the typical big-ticket items such as machinery and equipment. Since the line of credit is almost always secured by the items purchased the interest tends to be lower than that of credit cards that provide credit that is unsecured and represent a bigger risk to the card issuer.

The Advantages of Business Credit Cards

There are a number of advantages of using a business credit card. Business owners who have no credit history may not be able to get a bank loan or a line of credit while a credit card will almost always be available. It is also very easy to use a credit card and they can be used instantly at a number of places where it could prove very cumbersome to write out a check or make an electronic transfer of funds from your bank account. With a credit card, users also get a financial cushion in terms of the extended credit available that comes in very useful when sales are somewhat slow and cash at hand is not adequate. Credit cards are also a very easy way of transacting online with suppliers and contractors.

Easier Money Management

When you use credit cards, you will not only receive a monthly statement but also a summary at the end of the year that is a great help to accountants to properly record and classify financial transactions. These documents make it easier for the business owner to keep track of expenses and reduce the internal paperwork. Moreover almost all credit card issuers offer online tools that enable holders of business credit cards to manage their account properly. Credit card holders can also find transacting a rewarding process as they can use the loyalty points for various product purchases as well as various discounts and offers that can save quite a bit of money.

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