When you run a small business, debt is an inevitable and natural part of trading. When you go into business for yourself one of the most important things to do is to draw a firm line between your business debt and your household debt as lumping them in together can lead you to deal with your business debt in unhelpful (and stressful) ways. We’re conditioned to fear and loathe debt in our household finances and (it’s okay to admit it) many of us can find ourselves burying our heads in the sand. Nobody likes dealing with household debt, and it’s psychological and emotional effects are well documented to the point where we know the adverse effect it can have on our physical and psychological health. While your household debt may mire your budget and drag your mood down, business debt is an essential part of the machinery of your enterprise.
In both cases, however, debt can drag you down if you don’t get on top of it. There are many ways in which you, as a fiscally savvy entrepreneur, can do this but here we’re going to look at the strategic use of business credit cards and what you should be looking for when you go shopping for one.
Cards and liquidity
Every entrepreneur worth their salt knows that liquidity is at the heart of a successful business. Liquidity keeps the flow of cash moving, through and around your enterprise and allows you to capitalize on opportunities that will help to grow your business. This could mean taking advantage of a bargain priced batch of stock that you can sell at a discounted rate (thereby allowing you upselling opportunities), it could mean purchasing a new piece of software or equipment which will aid productivity and improve your time efficiency. It could even mean opening up at a better placed location or running two locations concurrently, thereby exponentially multiplying your foot traffic. Whatever the opportunity, a healthy cash flow will help you to get there. A credit card can help you to achieve this by ensuring that you’re always able to pay your suppliers and other creditors promptly and maintaining good relationships which keep the stock coming in and the lights on, freeing up your liquid assets so that you can move on opportunities as and when they present themselves.
That’s just one way in which business credit cards can contribute to the sustainable growth of your business… But how do you do about finding the right one? It’s all about knowing your needs as a business, and choosing a card accordingly. For example…
There will inevitably be times when you need to pay a small to medium sized debt quickly lest it reflect badly on your business’ credit rating. You don’t want to remove valuable liquid assets from the business but you need access to money quick. Fortunately, there are a wide range of credit cards with instant approvals that can help you to settle your debt near instantaneously. While you may have to wait a day or two for the physical card, you get your card number at the point of approval, meaning that you can pay your debts without solidifying your assets. Your creditors get paid, your business stays agile, and so long as you factor the interest rates into your usual business expenditure, everybody wins.
Know your options and limits
Business cards differ from household cards in several key ways and it’s important to become conversant with these if you are to use your business card to your enterprise’s advantage. Of course, business credit cards tend to have much higher credit limits but they also tend to have much higher interest rates, meaning that it’s crucial that you think long and hard about when and how you use them. All that interest can put a pretty big dent in your all important profit margins.
For this reason (among others) business cards should only be used for business expenses. As tempting as it may be to use those robust credit limits to solve your household woes, it can land you and your business in a whole heap of trouble. This goes not only for you but for any of your employees to whom you issue cards for their day to day expenses.
It’s important to remember that The Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 does not apply to business cards, so it behoves you to settle your business card debt in a timely and consistent manner.
Match your card to your business needs
We’ve already looked at using a credit card to get access to instant credit to escape debt but a business’ needs are many and varies. Businesses, like their CEOs have a certain lifestyle, and it makes sense to choose a card that complements the activities and expenses that are most often associated with your business. This means not only choosing an interest rate that won’t eat too heavily into your profit margins or a limit that will ensure that your debts are paid no matter what, but that you get rewards that will give your business an edge.
If, for example, your business requires you to travel a lot, consider taking a hit on your APY for a card that offers air miles or hotel vouchers like the Amex Business Platinum Card or the Starwood Preferred Guest Business Credit Card. If you find yourself entertaining key clients on a regular basis, it may be in your interests to choose a card that offers discounts or vouchers for restaurants. If you’re looking to squeeze every penny, look for a card with a healthy cashback yield.
Don’t shy away from fees
Finally, don’t shy away from a card that charges an upfront fee, especially if you know you’ll be sticking with it for a while. These cards may well benefit you more in the long term with higher reward rates and better signup bonuses.
As with any business expense, factor it into your monthly cash flow analysis and you’ll reap the benefits.