Establishing a new business is not an easy process. You have to secure all sorts of permits and licenses, set up an office, and purchase equipment and other items needed for your business. Often, new business owners don’t have enough cash on hand to put up a business. What they usually do is apply for a business credit card and use that to buy all the necessary equipment and supplies for their business. While business cards are beneficial most of the time, they can cause many problems if they are not used properly. In particular, excessive usage of these cards can result in the downfall of the business and it may even affect personal finances.
Effects on Your Personal Finances
Many new business owners are not aware that their credit activities using a business credit have a bearing on their personal credit score. As a new business owner, you have no credit rating yet. To protect themselves, lenders will need a personal liability agreement from you, and that is how your personal finances get tied into your business credit account. This should not be a problem at all if you are able to manage your business finances properly. In case you fail to pay your business credit account on time, however, there will be a corresponding reduction to your personal credit rating. Even if you are making regular payments on your personal credit card, your score will still suffer considerably because your personal credit account is linked to your business credit account.
Tips on the Proper Use of a Business Credit Card
When used in the right way, a business credit card can definitely help boost your business in just a short time. Here are some useful tips on how to manage your business credit card and avoid all the negative consequences mentioned above.
- Register your business with a credit bureau.
The sooner you get a business listing, the sooner your personal liability agreement will become void. In other words, no matter what happens to your business, your personal finances will no longer be affected.
- Make sufficient payments on time.
Each month, make sure to pay the entire amount on your bill if possible. If funds are inadequate, try at least to pay more than the minimum so you won’t suffer from steep interest rates in the future.
- Be discriminating in the use of your business credit card.
Just because you have a credit card doesn’t mean you have to use it for every business-related purchase. If you have cash on hand, use that instead. Reserve your credit card for emergencies or really important purchases.
- Monitor your employees’ credit activities closely.
If you are running a fairly large company where employees get their own business credit cards, keep a close tab on the credit activity of each employee. Do not give employees a high credit limit so they won’t be tempted to use the card for their personal needs.
With discipline and proper use, a business credit card can be an essential tool for the success of your business.