Business credit cards: Advantages & Disadvantages!

Any young entrepreneur requires finance to grow his business. They struggle to get a business loan from banks to fund their expansion. They are commonly suggested opting for a business credit card.

A business credit card provides an easier access to funds as compared to a loan. Although like personal credit cards, they have their own advantages and disadvantages. Let’s have a look:

Advantages

Easy to get: If your personal credit record is fine, your new business can get a credit card quickly. Getting a business loan is a stringent process and requires a clean credit history.

Convenience: New businesses often face a cash crunch. To carry out daily operations, you need regular access to funds. With business credit cards, you have instant access to money when you need it. You need not go through the hassle of borrowing money from a friend, family or bank.

Revolving credit: You can use your business credit card up to the credit limit and then repay it. This credit usage and repayment cycle, called revolving credit, continues every month. In the case of a loan, you can get the next loan only once the previous one is repaid.

Incentives: Using business credit cards offers you rewards and benefits. Common incentives include cash back, reward points, air miles and travel insurance.

Credit building: Your business must have a strong credit history if you need loan in future. Using a business credit card responsibly earns you points to build a good business credit score.

Disadvantages

High costs: In case of a delayed repayment, the interest rate payable and penalty fees are exorbitant. Even the annual fee for owning a business credit card is high as compared to its personal counterpart. If not managed properly, your business outgo could rise.

Personal credit liability: In most cases, a business credit card is linked to your personal credit report. Any negligence in its usage or repayment could lead to a drop in your personal credit score. It means, when you apply for any loan for personal needs like a car or home, your chances of approval reduce.

Lack of control: When you have a credit card, you are blind to the existing cash situation in your business. The situation worsens if you do not have restrictions on who can use the card and for what.

Changing interest rate: Depending on your past usage, the interest rate applicable can fluctuate. A bank may increase or decrease the interest rate at its discretion.

A business credit card can prove beneficial provided it is used properly. Put requisite measures in place to control the usage. Create a policy restricting the number of users, the reasons for usage, and the repayment schedule.

This work is produced by Simplus Information Services Pvt Ltd. Customer engagement through content.