Small business credit cards may offer alternative sources of financing for businesses and can provide benefits that will help these companies grow and become more prosperous, but before a business owner decides whether they should pursue either a small business loan, outside investment opportunities, or simply turn to a small business credit card to begin financing their company, there are some factors that need to be considered. Numerous financial institutions will offer a variety of small business credit card opportunities, and some come with various perks or rewards that may be helpful for a business’s particular needs, yet this does not mean that business owners will necessarily benefit from using credit to start their company.
However, there are arguments that many successful companies have used credit cards to get up and running and in a Cardratings.com article it’s mentioned that businesses may be able to benefit more from using a credit card rather than seeking out a loan. As an example, companies who are using a business credit card as a way to finance their company for either the purposes of furthering their business endeavor or simply getting started will be able to access credit when they need it for specific purchases, rather than acquiring a large loan that may be beyond what they need, and obviously, business credit cards will offer more prolonged access to capital, as opposed to a small business loan that may require the company to spend these funds early so that they can begin the repayment process.
Yet, there are some risks associated with small business credit cards, as they are not covered under aspects of the CARD Act that offer protections to help cardholders avoid sudden rate increases, excessive fees, or other difficulties that may have caused financial strain for these individuals. According to SmartMoney.com, some of these drawbacks mean that, “…cardholders won’t receive advance notification when interest rates rise, and payments won’t be allocated to highest-interest rate debt first.” Also, there are concerns that some businesses may face higher rates in the near future as these new rules associated with the CARD Act have required that credit card lenders recoup losses in other areas, which could result in higher rates on certain types of business credit cards.
Obviously, when a business owner is looking for a small business credit card that may be helpful for financing their company’s endeavors, they need to look at not only their current interest rate, but their ability to repay purchases in a timely manner so that no matter if their card sees an increase in interest, they will be able to avoid excessive costs that may come with a higher rate. Also, cardholders must look at certain fees and if an introductory rate is offered, businesses must factor in what their rate will be after the introductory period expires, so that purchases may be better budgeted for repayment.
However, some companies may also want to look at aspects of a business credit card, like travel reward points, if a business owner may be able to further their company by establishing business contacts or offices in different cities and states, but certain rewards that may be offered on a particular card might lead to higher fees or interest rates, so avoiding rewards programs that may not be helpful for a particular company will also be a consideration that a business owner needs to explore, among others, when they are choosing a credit card for their particular business.