When you have a small business, it’s easy to think of it as a separate entity with expenses and debts unrelated to your own. The fact that most credit card issuers don’t report your business credit card activity on your personal credit report file adds to the misconception.
And that makes it easy to get your business deep into credit card debt.
Because small business people believe that they need to put on a good front to customers, clients, and even employees, it becomes easy to over-spend on non-essentials, or even unproven advertising venues. And, when cash flow is not flowing well, it becomes easy to lean on the credit card.
This was especially true when credit card companies were filling mailboxes with checks pre-written for $3,000, $5,000 and more – but it is still a danger today.
Most small business entrepreneurs share a basic optimism that things really will be better tomorrow. So it’s easy to say: “Well just use this check to pay this months’ expenses, and by next month we’ll have the money to pay it back.”
If you have a business credit card, think twice before you use it. Is this purchase or expense essential? And if it is essential, do you need to spend this much? You may actually need a new desk chair, but do you need the $500 chair? Perhaps the $150 chair will do just as well.
Obviously, if you have payroll to meet or tax payments to deposit before you’ve received customer payments, having the credit card to fall back on is a big help. And if you have a lot of miscellaneous expenses such as gasoline, office supplies, and meals, the credit card accounting services can help you keep track of spending. Used as a tool, your business credit card can be an asset.
But carrying a balance from month to month can drag your business down and cause you to spend too much of your hard earned money on interest.
Business credit cards are not covered under the Credit CARD Act. That means carrying a balance in today’s economy is dangerous. The credit card issuer can and might raise your rate at any time – and they’re not required to warn you ahead of time. $20 in interest charges last month could easily turn into $50 next month.
So get a business card and use it for the convenience and the bookkeeping features – but strive to avoid carrying a balance.
Author: Mike Clover
CreditScoreQuick your online resource for credit cards and credit reports.
