According to a recent report published by the Tower Group, 65% of small business owners regularly use a credit card to make essential business purchases. A business credit card can help you track spending, manage expenses, and build business credit credibility for your company.
However, once you have obtained a credit card for your business, you need to put in place effective credit management practices to ensure that your company spends wisely, pays down debt efficiently, and avoids costly penalties.
Properly managed, a business credit card is a tremendous asset, but business owners need to be aware of the potential pitfalls. Here are four tips to help you make the most of a business credit card.
1. Avoid Co-Mingling
Mixing personal and small business credit not only creates potential tax problems, but it also weakens your company’s financial position. Business credit is like a muscle, and if you don’t use it, or if you use it improperly, your company’s credit will atrophy.
The only way to effectively build credit for your business is to utilize your resources as efficiently as possible. Business owners who rely on personal credit or personal savings to finance basic business operations run the risk of undermining their reputation in the eyes of lenders.
Your business is not a hobby, and it is not an extension of your personal identity. Lenders (not to mention Uncle Sam), need to see that you serious about building credit responsibly. Show them that you mean business by keeping your personal plastic in your wallet.
2. Pay Your Balance Every Month
Get it the habit of paying your credit card bill in full every month. Timely, complete payment of your credit card balance is the only reliable way to improve credibility, avoid expensive fines, and put your business in a favorable position to renegotiate with your credit card provider for better terms and rates.
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