About Business Finance

Posted by admin on June 5th, 2007 in Business Credit Cards

Summary: Business credit cards may have many benefits to small business owners and entrepreneurs, but there are also downsides to using business credit cards for your small business financing needs. Find out about the potential drawbacks of business credit cards before deciding if they’re right for your business.

Despite their many perks to business owners, business credit cards also have a downside and risk to their use, much as personal credit cards do. Here are a few common risks or potential problems with using business credit cards for a small or online business:

Potential for Abuse – Because business credit cards offer an instant funding solution for business owners, even when there is no cash on-hand, they carry the potential to be abused. One of the most common examples of business credit card abuse or overuse is during a small business startup. When an entrepreneur can’t obtain other forms of small business financing, credit cards can become an attractive option. The problem is that the business owner sometimes isn’t able to recoup the expense quickly enough, and they stay in debt, adding financial strain to the new business.

High Interest Rates – Just like with personal credit cards, business credit cards often carry high interest rates. Those interest rates can accumulate, and amount to a hefty business expense. The biggest hit will often come if a business owner applies for a business credit card with a low introductory interest rate without paying attention to the later rate hike or amount, having the interest rate on the credit card increase unexpectedly later.

Risk to Business Reputation – If business credit cards aren’t managed carefully, not only can they land a business in a large amount of debt, but they can cause long-term damage to the reputation of a business by severely decreasing a business’ credit score, making it difficult to get credit accounts with suppliers or other partnering companies in the future, or even putting an owner out of business.

Most of the downsides of business credit cards can be controlled or avoided with effective credit card management and careful planning when choosing business credit cards.

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