Imagine you've got a fantastic new business idea. You've conducted market research, run the numbers, tested the prototypes—and you're confident it's a winner. To get it off the ground, you may need a short-term financing solution. The problem is, as with any new idea, you also may struggle to get funding via traditional routes.
Increasingly, the answer can be business charge or credit cards. In the United States, small-business credit-card purchase volumes are estimated to hit $686 billion by 2022, an increase from $493 billion in 2017, according to Mercator Advisory Group.
In fact, the use of credit among small businesses may be even more widespread because many "solopreneurs" use personal credit cards for company expenses, attracted by competitive rates and rewards and greater consumer protection.
So what are the benefits of business cards for growing companies—and how can they help make your big ideas reality? Here's a look.
1. Easy Access to Credit
A key reason for their popularity is that business charge or credit cards have a low barrier to entry. Big banks may not want to extend you a loan if your business has a short trading track record or isn't yet turning a profit. But business cards can be one of the easiest forms of finance to get for new, less-established businesses. There's no banker to answer to, making them attractive to startups in search of funding.
2. Retaining Control of Your Business
Using charge or credit cards to finance your business in the early stages means you don't have to give away any of it to shareholders, as you would if you financed using equity. Instead, you retain all the capital in your enterprise.
3. Help with Future Financing
Responsible use of a charge or credit card helps build and improve your business's credit profile—and could make you more attractive to other types of lenders down the road. This should make it easier for you to secure future financing to grow your business, and could make borrowing cheaper, as the most trustworthy borrowers get access to preferential rates.
If you're certain a credit card is the right choice to help you implement your business ideas, do your homework and compare products to get the best deal you can.
4. Visibility of Spending
When you're trying to implement a new business idea, every cent counts. An itemized statement can show you exactly where your company cash is going, so you can keep track of all your outlays—from business travel to IT equipment. You should be able to spot trends and where you could make cutbacks to conserve cash.
5. Cash-Flow Management
When your company is in its infancy, sometimes you hit a rocky patch where your cash flow can't keep pace with your expenses. Business charge or credit cards can help you improve your cash flow by filling short-term gaps to keep things running smoothly. But it's not sustainable to use business cards to cover outgoings indefinitely—if you never have cash reserves and are totally reliant on credit, your position is precarious and your business finances need some serious attention.
6. Big Purchases
Business credit cards can be useful for big purchases, whether it's the extra inventory to fulfill a big order or a piece of equipment or software you need to get an edge on the competition. Check that the purchase won't take you right up to your credit limit, leaving you without access to funds, and that you have a plan to pay off the balance. Also, look for a card with an interest-free period on purchases.
7. A Financial Buffer
Once you have a charge or credit card, you have an instant source of financing without having to go through the approvals process you would face with a loan, for example. A credit card or charge card with extended pay options can give a financial buffer that allows you to cover any unforeseen costs with no interruption to your business operations. You can even use a charge or credit card to pay suppliers and contractors in a pinch, if your clients are late paying you. The month until your bill is due could give you a bit of breathing space before that money comes in.
Remember: Handle with Care
Used properly, business charge or credit cards can be a lifeline for young companies, but they must be handled carefully. They can also be an expensive form of borrowing that won't be suitable for every purpose. For larger, ongoing projects, it may be better to look at other form of finance such as loans, overdrafts or hire purchase schemes.
If you're certain a charge or credit card is the right choice to help you implement your business ideas, do your homework and compare products to get the best deal you can. Aside from the annual percentage rate, or APR, some business cards will also charge annual fees, fees for cash withdrawals from ATMs, fees for late or missed payments and fees for going over your credit limit without authorization. If you travel a lot for business purposes, you will want a card which doesn't hit you with high fees for overseas use. Look for one that lets you earn miles to put toward travel, or other rewards and cashback on purchases relevant to your business, depending on how you plan to use your card.
Photo: Getty Images
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