As a small business owner, you need to closely monitor finances and manage cash flow- especially in the first few years. One way to get what you need without delaying critical payments is with a small business credit card. There are several advantages and disadvantages of using a business credit card. Here’s what you need to know before getting a business credit card.

Are Business Credit Cards a Good Idea?

Most personal finance gurus would recommend against using credit cards for your small business, but if you must get one, it should be separate from your credit cards. When you mix persona with business credit purchases, it becomes challenging to organize your business expenses at tax time or if the IRS audits you.

Also, by keeping personal and business credit cards separate, you can use the statements to categorize expenses, which can be helpful when you are creating a budget or tracking expenses.

It’s also important to understand how to use business credit cards. You can use it for short-term debts that can be paid off within 1 to 3 months, but not long-term needs that can’t be paid back within that timeframe.

Options for Business Credit Cards

Several credit card companies offer credit cards for small businesses. Here are some of the options you may encounter in your research:

Cashback/Airline Miles/Other Benefits

Many business credit cards have benefits that accrue as you make purchases, including airline miles, cashback, rewards points, savings on business supplies, and even gas rebates.

Interest Rates

Many times, credit card companies offer a limited-time 0% or low APR, which gives you time to finance your business without paying high interest. However, if you miss a due date or you don’t pay off the balance during the promotional period, many times interest is added to the entire balance- not just what you still owe.

Annual Fees

Some business credit cards charge an annual fee and others don’t. You may be tempted to choose the one without the fee- but in some cases, the one with the fee offers more opportunities to earn points, cashback, and other rewards.

Advantages of Business Credit Cards

When used strategically, a small business credit card can be an asset. The top three benefits of using a business credit card include:

Keeping personal and business expenses separate. This can be helpful during tax time or if the IRS wants to do an audit.

Short-term spending flexibility. If you have an invoice that needs to be paid right away or unexpected expenses, a business credit card can help. However, this should not be treated as free money or a way to spend money that you don’t have.

Rewards/perks are not available to consumer accounts. Business credit cards typically offer more perks, such as bonus points or cashback, than consumer credit cards. These rewards can usually be applied to other purchases or as a bill credit.

Disadvantages of Business Credit Cards

Unfortunately, managing business credit cards can be tricky. The top three concerns with business credit cards include:

You may overextend yourself. Using multiple cards is risky- therefore, use only one card so that you can monitor your expenses and credit status.

You may spend more than you should. Financial experts recommend against using a business credit card to finance your business. Instead, you should use outside investors or loans. If you use a business credit card and can’t pay the balance, you may incur other fees and interest, which increases your debt.

You may accidentally use it for personal purchases. Legally, ethically, and financially, a business credit card should only be used for business expenses.

Let Us Help

If you are considering getting a business credit card, contact First Class Lending. We can help you determine if a business credit card is the best option for your business or if you should consider another option.