|
While it is certainly true that you do not have to have a credit card to run a business, there is no denying that it sure helps, especially in your business’s early years. The ability to purchase supplies, pay for travel and postage while getting Frequent Flyer Miles or cash back bonuses is a nice bonus. Most small businesses use Credit Cards to one degree or another, and more than a few absolutely rely on them.
Used properly, a credit card can be a huge help to your business. While not the cheapest money, credit cards are quick and easy money if cash is tight, and these days the small business market is being courted in a big way by the credit card companies. Many business credit cards offer cash back, rewards such as airline miles or free trips, and thanks to the popularity of tax software like Quicken, many offer download-able reports to make keeping your tax records easier. The world of small business credit is not without hazards, however. There are dangers that, if ignored, could cause heartache and trouble down the road. Luckily, if you know about them in advance you can reduce the effect they can have on you and your business. For example, one thing most first time borrowers do not know is that, for the first few years at least, your business and personal credit file will be blended. Since your business has not yet built up a credit file with Dunn & Bradstreet or one of the other Business Credit Databases, the credit card company will report your business credit card activities on your personal credit file with the big three credit bureaus (Experian, Equifax and TransUnion). There are several ways this could harm you. For instance, should your business go through a cash crunch and you make several late payments or, worse yet, miss a payment, this will be reported on your personal credit file and can reduce your personal credit score.
Another example of how it could hurt you would be if your business carries a large amount of debt on its credit card. In and of itself this is not bad, but the debt can show up on your personal credit file as your debt; unfortunately, the income your company will use to pay the debt does NOT show up on your file. Because of this, when you try to borrow money personally, you will have an abnormally high debt to income ratio, which can throw up a red flag and hurt your ability to get a loan. Another thing that most first time business borrowers are unaware of is the area of personal liability. If your business defaults and does not pay the credit card bills, the credit card company can come after whoever signed the application, usually the owner or an officer in the corporation, requiring them to bring the payments current or even pay off the remaining balance. That is a fairly standard clause in business credit card agreements. There are situations where you can negotiate away the personal liability, but that has to be done on an individual basis, and it will probably require getting your attorney involved. However, with several years of timely payments, your business will be able to develop its own credit profile and you should be able to separate your business debt from your personal credit file. Another hazard most business credit card users are unaware of is in the amount of buyer protection they have with the card. Since credit card companies intend the cards to be used by businesses and not consumers, many of the protections that personal credit card users are used to usually do not apply to small businesses. As an example: With your personal credit card, you can dispute charges on your bill and while they are under dispute, you can’t be charged interest, be required to pay the disputed charge and they cannot cancel the account. None of that applies to credit cards issued to small businesses. Another example of the difference between personal and business credit cards is what is called “claims and defenses” in the industry. Simply put, if you buy something and the item breaks or is defective and the merchant refuses to help, if you bought it on your personal card the credit card company will intercede on your behalf. However, if you bought it on your Business credit card, you may be on your own. So, be very careful while choosing a Business Credit card and make sure it meets all your needs and provides all the benefits you have become accustomed to. In short, the decision to get a credit card for your small business could be a good one, but if you are not careful, there are potential problems. Now, however, you have the knowledge and information to help you make good choices.
 |
Articles 
Delicious
Technorati
Digg
YahooMyWeb
