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Get Smart About Business Credit Cards: Tips From A Pro

The first thrill about starting a new enterprise is seeing the name of your creation on a business card. You want to hand them out to everyone you see — friends, family, the kid who bags your groceries. Soon after you’ve registered your trade name, the credit card offers start cluttering your mailbox. It’s flattering at first. You imagine going out to dinner, grabbing the check, and saying, “it’s okay, it’s on the company.” So you fill out one or two “pre-approved” applications and, like your business card, can’t wait to use this little symbol of acknowledgement.

A corporate card tells people you’ve arrived. You’re a legitimate business. But it can also spell trouble. The purpose of a business credit card is to have the convenience of charging legitimate business expenses. You avoid using a personal credit card and submitting receipts for reimbursement.

You have the ability of making online and telephone purchases to expedite shipment. The revolving account helps you plan your cash flow. The statements provide a detailed accounting record. Used wisely, a business credit card provides these important benefits and is essential to building your corporate credit profile. Demonstrating reasonable usage and maintaining a good payment history not only allows you to gain more credit, but also helps you negotiate better interest rates on loans, lines of credit, and other revolving accounts. In fact, using a credit card properly is better than paying cash because lenders want to see a credit profile with positive activity. One small business owner had been vigilant about paying cash for all his purchases to avoid having monthly bills. He had had some personal credit issues in the past and was determined to avoid a recurrence. He felt great about keeping his costs under control. When the owner applied for a business loan at the local bank, he was advised that the black marks on his profile were minor.

The biggest problem was that he had no recent credit history. So, he got a credit card, budgeted a monthly allowance for the payment, and made small purchases to establish reports on his credit profile. A business credit account is clearly valuable for a lot of functions. What it isn’t is a license to spend without regard to the consequences. Just because you’re not writing a check doesn’t mean you haven’t spent corporate cash. By following some basic guidelines, you can manage your corporate credit card account so you reap the rewards instead of paying the price. * Get credit from your own bank. Once you establish a business banking relationship with a local financial institution, continue to grow that relationship by applying for your business credit card at the same place. The more business you do with this bank, the more they get to know you. The comfort level increases the likelihood that they will consider your request for funding when the time arises.

Show loyalty to them and it will be repaid in kind. * Read the fine print. Many credit card companies shout out low introductory rates. The key word here is “introductory.” After the honeymoon period is over, the rate can shoot up above the interest you’re paying on your current card. There might be hidden fees that can rack up the bottom line on your monthly statement. Look for an annual fee, the first sign that this card is going to cost you money. If you have to pay for the privilege of having the card, chances are you don’t need it. There are various other features that you do want: overdraft protection, 24-hour customer service, and detailed account reports for your business. In the long run, these services are far more important business benefits than frequent flyer miles or discounts on rental cars that are often accompanied by numerous restrictions of their own.

* Find a card and stick with it. With all the offers of lower interest rates and appealing incentives, you might be tempted to switch your account from one issuer to another. Unless you are dissatisfied with your credit card company, stay put. Card hopping shows up on your credit profile and will likely be unimpressive to a prospective lender. Use your valuable time to manage your business instead of pitting one credit card company against another. * Do not mix business with pleasure. A business credit card is intended for business purchases only. In the event of an IRS audit —†and they do occur via random selection — questionable expenses will raise suspicion. * You don’t need a deck of cards.


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