Business Credit Cards vs Business Loans
At first it may seem to make little sense taking out a business credit card, businesses unlike individuals with jobs may have income that goes up and down so taking out a credit card that needs paying each month is a risk. It is sadly true though that banks are less and less likely to loan money to businesses, unless secured by the business's assets. Most small business have very few securable assets, especially in many IT and technology based companies where the assets are the skills and knowledge of employees and owners.
Credit Cards are a type of loan but are much more flexible. You can have a credit card with one limit but use anything up to that. If you take out a business loan you have to predict what money your business needs. This is fine if you are simply purchasing a new piece of equipment but sometimes you need funds for long run costs. If you don't use some of the money you borrow you still pay interest on it and if you don't spend all of a loan for several months you are still paying interest starting from the time you receive the loan. On a credit card you only have to pay interest on what you have used and then use the extra when you need to and only then pay interest. With a loan you usually have a very strict way to pay the loan back often with penalties if you want to pay it back early. With a credit card minimum monthly payments are often low and you can pay off big chunks whenever you want. The main advantage of a credit card for a business rather than a loan is that you can carry on using a credit card for as long as you like, with a loan you make repayments until it is paid off and then if you need more money need a new loan.
Having a business credit card is especially useful for a business that needs to be flexible. If you need to quickly replace equipment or someone fails to pay you for your product or service and you need to bridge a gap in funds, you can't draw up a business plan for the bank and wait weeks to see if they decide to give you a loan. Having a credit card means you can borrow money straight away. A credit card is ideal for sorting out cash flow problems, most customers who don't pay on time do pay eventually but you still have to pay staff and suppliers just the same or else it could put you out of business. If you know money is coming in then you can simply use a credit card and pay off the balance when you get the money. You may even be able to charge your customer interest to cover the interest you have to pay.
You can even use a credit card to spend money you know you have coming which is ideal if bills are paid on 30 day terms, again it could be equipment you need or you may need to buy the supplies and extra staff in to complete a job which you will get paid for only once it is done. A credit card may give you the flexibility to take on jobs that you otherwise wouldn't be able to take on for lack of cash.
Questions and Answers
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When choosing a credit card your personal circumstances should play a big part in your choice. For example, if you are looking to borrow money for a long period of time then the interest rate will be of paramount importance and you may find it best to switch between cards to find the lowest rate on your cash.
All credit card issuers are not created equal. It depends on what you're looking for in a credit card. Some card issuers specialize in offering business credit cards which may be of interest and more suitable to you if you run a business. Some issuers may provide bonuses to the individual card holder.
Should you use a credit card or get a loan? The way you get your money from a credit card compared to a loan is quite different. With a loan you get the money you need as a lump sum paid to you when you take out the loan and straight away you pay interest on the whole amount. This means that if you want a loan to cover a variety of things such as expenses while you are a student or maybe for a business, you are paying interest on money you have borrowed before you even use it.
How do you deal with bad credit? Bad credit is definitely something you'll want to take steps to avoid, but if you already have bad credit that's all the more reason to improve it now. A credit card can be a great way to do this. Bear in mind, many people assume they have poor credit ratings when in fact they may not, or at least their credit rating may not be bad enough to actually affect which credit cards they can get approved for.
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