According to a study by the firm Mercator Advisory Group, by 2015 there were about 13.9 million credit cards in use by small businesses in the United States. The report also indicates that the expenses of the companies that use credit cards amount to $430 billion dollars. These figures reflect the high use this form of financing has found among entrepreneurs, since they are a reliable source of capital because they offer a renewable credit line with higher limits than personal credit cards.
However, deciding on a credit card as a financing mechanism can be difficult for entrepreneurs who don’t understand their advantages. In order to have a clear perspective on this issue, we’ll list the main qualities of this credit tool and the ways in which it can help you grow your business.
It Creates Credit History
One of the main reasons loan applications are rejected is due to the lack of a credit score. This score is obtained by evaluating the financial background of your business, such as pending debts and on-time payments. These and other factors make up your credit history.
One of the simplest ways to establish a positive credit history, is to use a business credit card. This positive credit history will allow you to access bank loans in the future and others types of credit .
It’s Easy to Access this Type of Funding
Applying for a business credit card is easier than receiving a bank loan. It isn’t necessary to gather endless documents such as financial statements, tax returns or a detailed business plan.
It Gives you Special Benefits
Business credit cards reward you for using them and you can adapt these rewards to the needs of your business. For example, if you travel by plane frequently, you can earn free miles. You can also get better hotel rooms and discounts when renting a car. Other benefits include discounts on fuel and refunds of up to 5 percent on purchases made in authorized stores by the card provider.
It Helps you Organize your Spending
Most business credit cards come with accounting tools that keep track of financial transactions – they generate monthly reports of expenses, and simplify the way you declare taxes by keeping business expenses separate from personal expenses.
This method of financing is considerably less risky than a bank loan. To access this line of financing you don’t have to offer valuable assets as guarantees.
You Get Higher Credit Limits
Generally, business credit cards have higher credit limits than personal cards, which allows you to increase the purchasing power of your business and invest more capital into it. In addition, when you pay your debts on time, credit will be available instantly.
Business credit cards are, in many cases, the only financing option available to small businesses. Before you apply for one, evaluate the different alternatives available in the market, compare the benefits, interest rates and grace periods they offer. In addition, don’t t forget to read the small print in the contract, and when you get the card, make all payments on time.
Understanding all the possibilities of this form of credit and the risks that entail its use, can make the difference between a successful business and one with financial difficulties.
How do you think a business card can boost your business?
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