Credit cards are very useful pieces of plastic to have on you because they make life more convenient but they could be a headache dealing with too especially if you’re a business owner. As a business owner you have the extra burden of worrying about your businesses expenses as you must try to find a way to keep your business operating while making sure you don’t go overboard with spending. Eventually though as your business grow you’ll need to find alternative ways to fund your business activities on top of your current expenses one of the most used is through credit cards. As useful as they may be they come with their own drawbacks and before you think about using a credit card to purchase inventory for your business think about what are the pros and cons of using them for your business.
Build credit– Building credit is as important for businesses purposes as they are for personal ones. Improving your credit score for your business can help you a lot if you’re planning on getting funding for your business. Keep that in mind when you want to expand your business but don’t want to run your credit card bill up.
No collateral– There is no need for collateral when using a credit card for business purposes so your assets are safe. They have the extra benefit of providing financial protection compared to funding from banks since they require personal guarantee and you do not have to provide equity to receive money as is the case for venture capital firms. Using a credit card basically provides you risk free financial protection.
Simple funding– At times businesses can come to money issues because of lack of cash flow. When you need cash a credit card is handy when you have needs such as new equipment, inventory and even more capital. There’s also the rewards and perks you get from using credit cards like cash back.
Credit rating risk– A bad credit score is a difficult thing to repair and with a credit card you must be extra careful about how you use it because they can damage any future chances of getting credit for a car note or mortgage. A bad credit score could also effect how future employers would view you in the event you have to sell your business and work somewhere else. Credit worthiness is something you should be concerned about whether your a business owner or not.
Security issues– Risk of fraudulent activities happening on your expense is another thing to worry about. A credit card can be misused online by your employees so set strict guidelines as to who can make purchases and what can be purchased. Also keep a tight lock on your card number to avoid more issues along the way.
Business mix with personal finance– Your credit card if you’re using it for both personal and business reasons can mix both of those expenses and that could lead to a financial disaster as your personal credit score would go down with your business credit score if your business has run up to some spending/debt issues and vice versa. Keep in mind that it could impact the financial well-being of your dependents as well.
When using your credit card be sure to think about what would the cost and benefits be because credit scores have a big impact in people’s day to day activities and businesses are no different. If you’re responsible enough though they are very helpful and cost effective in the long run so be smart when it comes to using credit cards even if it’s not for business. Debt never looks good in anyone’s financial history.
This article was sourced and remodified from http://www.business.com/finance/marvin-dumont-finance-with-credit-cards/.