What to Do and What Not to Do When Using Business Credit Cards

Introduction

A common situation for many small and medium businesses, as well as many startups, is that they sometimes lack certain funds. As newbies in the industry or without enough leverage to compete in the market, they might look for sources of funds such as loans or business credit cards. Many businesses cite the lack of credit availability as a concern in the future period. 

It’s often easier to apply for business credit cards than for loans. However, the important difference is that they have higher interest rates than loans. Notably, this debt is often unsecured. 

There are many benefits that business credit cards can bring for the business and its employees. Nevertheless, it also carries all the risks that credit cards for individuals bring. Their careless usage can lead to significant expenses for the company and negate their benefits. 

To highlight the best uses of business credit cards for businesses of various sizes, as well as the critical penalties you might receive when using them carelessly, take a look at some of the key do’s and don’ts compiled below. 

Do’s of using business credit cards. 

It’s important to mention all the benefits of using business credit cards and how to make the most out of them. These points will guarantee that you won’t have any problems while using them anytime soon. 

1. Optimizing benefits

To make the most out of using business credit cards, you need to break down the current expenses of your company. The places where the money is spent vary depending on the size and the field in which it operates. A remote IT company and a transportation company definitely don’t have the same expenses. 

Doing research on the perks of various credit card deals will help you find the most suitable for your company and allow you to optimize its benefits. Certain credit card offers give discounts on accommodation, while others give deals on things such as advertising or office equipment.

That being said, you should find the credit card that suits your company the best. In the long run, this will allow you to minimize expenses and grant you the most benefits. However, the better the deal sounds, the more money your company needs to spend.

Some card companies started offering companies to create their bonus category. Competition for these bonus deals is increasing, and it’s recorded that the usage of business credit cards is becoming more common among millennial startup founders. 

2. Researching fees and terms

Business credit card agreements contain tons of information you need to research. It’s important to understand what could happen with your finances in every possible scenario. Business credit cards don’t have nearly as many protections as credit cards for individuals. Researching any promotions and offers is also important if you want to make the most out of the credit card.

What to Do and What Not to Do When Using Business Credit Cards

What personal credit cards lack is the number of introductory offers. However, their business counterparts can offer attractive benefits for limited periods. Certain banks might offer zero-interest credit cards, while others require you to meet a spending quota to get you to a certain award tier. 

Promotions can end unexpectedly, which might lead you to an unenviable situation. By understanding the terms in detail, you will be able to avoid paying unnecessary bills that you might receive if you don’t manage your expenses accordingly. 

A credit card policy for your company is a must. Ensure that the company won’t get into debt thanks to the ignorance of your employees, consider having meetings with them and explaining the fees and terms of using the credit cards in question. Knowledge of all the traps your business can fall into will prevent the chances of credit cards harming its finances rather than helping it. 

3. Paying off credit card debts

No matter how responsible you are with your monthly payments, unexpected situations and expenses might lead you to miss out on payments for your credit card debts. For both you personally and your business, staying on top of the payments is the best approach for increasing your business’s credit score

By paying off your debt monthly, you are avoiding paying interest, thus saving money. If you are confident in the financial situation of your business, you can schedule monthly payments and divert attention to other aspects of your finances. However, if you aren’t assured that you can pay the debt in time, you can leave a balance below your spending limit. 

Specific business credit cards are tied to the credit score of the business. Other options will impact your personal credit score. Without a wise strategy on how to utilize them, you can accumulate debt over time and create a financial crisis for yourself and your business. 

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Don’ts of using business credit cards 

After covering the best ways to use this type of credit card, it’s just as important to understand how not to use them. In fact, it’s much more dangerous to make mistakes while using the card than it is not to optimize its advantages.

From using them carelessly to using them for the wrong reasons, you should do your best to avoid certain behaviors. 

1. Using business credit cards for certain expenses

It’s impossible to talk about expenses without categorizing them. To avoid being too vague, it’s important to separate some key categories for which business credit cards shouldn’t be used. 

Personal expenses

By using business credit cards for personal expenses, you certainly aren’t breaking any laws or agreements. Since there is a variety of consumer credit card options, there aren’t many reasons why you should use a business credit card instead of a personal one for personal expenses. On top of that, this will lead to multiple downsides for you personally and for your business.

What to Do and What Not to Do When Using Business Credit Cards

Consumer credit cards are issued with certain protections for the user. According to the CARD act, you will lose these protections if you use your business card for personal expenses

Doing your taxes and accounting will be one complicated process if you start using your business card for personal expenses. Saving money by using the card for personal expenses will ultimately lead to other expenses. 

Large expenses 

It might seem at first that using your business card for a large payment is the easiest solution, but you might want to reconsider things. Before grabbing your card to make the payment, think of other ways of making the purchase. 

Getting a loan, whether personal or for your business, or saving up money for a certain period might be a better approach to this expenditure. 

Besides the situations where you have a credit card with a 0% APR offer, you will most likely spend much more money through interest on the item than you need to. 

Payrolls

Suppose you come to a point where you need to look for alternative sources for paying your employees, such as using credit cards. You should evaluate your business and look for ways to escape the situation you got yourself into.

Financing your payrolls through business credit cards will eventually lead to a significant increase in your expenses in both short and long-term periods. You will most likely pay high-interest rates, potentially leading to your business’s demise.  

There are better ways to handle this problem, such as looking into loans for small businesses. 

High-risk investments

Investing in things that are considered high-risk is missing the point of business cards. A credit card is a tool that can help you boost certain financial aspects of your business, but investing in things not related to your business can lead to huge losses. 

Things such as crypto-currencies are a dangerous trap in which you can fall and destroy your business. From the volatility of the market to transaction fees that you need to repay, you should avoid using business funds for such unsafe investments. 

2. Maxing out

A terrible mistake you should never make is maxing out your credit cards. Using more than 30% of the credit card limit can make your business lose its credit card score. This advice applies to both business and personal credit cards, and you should avoid it at all costs.

What to Do and What Not to Do When Using Business Credit Cards

3. Missing out on credit card awards

There are multiple categories of credit card rewards. The most common one is a cashback credit card which returns a portion of the spent funds in the form of a check, bank card, or various other forms. 

Other types of credit card awards include rewards in the form of physical or digital goods that you can redeem from certain stores. For businesses that travel often, the most attractive form of reward is frequent flyer miles which will grant them the possibility to fly for an x amount of miles, or kilometers, for every dollar spent.  

Are business credit cards worth it? 

Business credit cards are a double-edged sword, they can be quite beneficial for funding small companies and startups, but they can also be their demise. In any case, by using them responsibly, doing the required research, and avoiding some of their traps, utilizing the options that they offer are a great way to access extra funds for your enterprise. 


About Writer:

Veljko

Veljko is a student of information technology that paired his passion for technology with his writing skills. He enjoys researching topics such as robotics and programming and cultivates his knowledge in philosophy, classical literature, and fitness. Veljko’s favorite writers are Borislav Pekić, Miloš Crnjanski, and Ernest Hemingway.

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