(Looking instead for information on Credit Card Advances? Check out our explanation page here.)
A business credit card is commonly used as a source of small business financing. According to the U.S. Small Business Administration, 65% of small businesses use credit cards to fund their budgets, at least partially.
There are many questions that all small business owners know they have to answer when they take out a credit card on behalf of their business. It’s common knowledge that owners need to decide who can use the card, to what ends and when the balances will be paid off.
However, many small business owners often lack clarity on many credit cards they should use on behalf of their business, or what purposes the credit card spending should be focused around.
When you should open a new business credit card
The SBA noted that one of the best uses for business credit cards is to track expenses by division. For example, many business owners keep many credit cards open, all for their own distinct purposes: one card is designated for a specific division of the company, another for necessary equipment purchases, and another for travel expenses and so on. This way, all the costs incurred on behalf of these specific tasks and divisions will be managed within their own expense account, by way of the specific credit card.
So if you’re looking for ways to create a distinction between different kinds of spending at your small business, consider opening a new – or even multiple – credit card accounts on behalf of your business.
When you shouldn’t open a new business credit card
There are also times when you shouldn’t open a new credit card – like when you need to take advantage of growth opportunities, unforeseen obstacles or pay down any debts. It’s never a good idea to use a credit card to finance situations like this. Rather, direct loans from sources like OnDeck or your local bank are ideal. Also, if you have to increase a credit limit or open a new card simply to pay off an already existing balance, you can expect your credit score to take a hit as a result – and further financial troubles may follow such behavior, as well.
The bottom line: open credit cards for specific reasons and costs, and only when you can comfortably pay off balances – not when you’re in need of financing for growth.