In an age of on-line payments and multinational business ventures, many small business owners are finding business credit cards to be a smart choice for simplifying payments, organizing expenses, and expanding the capability and autonomy of employees both locally and abroad. Before diving right in and applying for a small business credit card, however, every responsible business owner should ask himself or herself: is a small business credit card the right choice for my business?
There are several factors that can help determine this, but one of the simplest is how long the company has been in existence. Until a company has been around for at least two years, many banks and credit card companies may be reluctant to draw enough conclusions about the company's financial responsibility to approve a large line of credit. In cases such as these, whether a business credit card is approved or not will depend on the personal financial and credit history of whatever individual--from business partner to simple employee--actually puts in the application for the card. This may not be a problem in the case of a rock-solid personal finance history, but if there's any doubt, acquiring a good business credit card may be a trickier proposition.
Another thing to watch out for in the case of a startup small business is the question of personal financial liability. Since Santa Clara County v. Southern Pacific Railroad in 1886, corporations have had the legal status of individuals, except insofar as business credit cards for startup companies are concerned. The first years of any business are the hardest, and in the case of company bankruptcy, any outstanding financial obligations based on a business credit card will be the original applicant's responsibility to meet. In the case of a large financial obligation, this can be a disaster for personal finance. Of course this is no argument against small business credit cards in all cases--far from it. However, any company interested in setting up a small business credit card would be wise to double-check its business plan and make sure that, in the rare event that the worst occurs, a "Plan B" for paying off the credit balance is firmly in place.
Even established small businesses would do well to examine their financial needs before taking the plunge with a business credit card. In the case of a business which involves a great deal of travel on the part of its employees, a large on-line business component, or a wide variety of expenses that require the business to deal with a number of different suppliers, a small business credit card is virtually essential. However, some small businesses are largely local, largely service-based, or have only a handful of employees authorized to make purchases. In cases like this, the reluctance of a few business credit card providers to allow disputes over billing errors or payments may actually complicate expense reporting and year-end inventories--sometimes a very real problem in the case of small businesses that have expanded far beyond their original business plan or intentions, resulting in a draconian system of purchaser agreements and expense accounts. So the decision to apply for a small business credit card should be made carefully, with defined uses for the card well in place, and a possible light restructuring of the business might even be warranted in order to ensure that payment responsibilities and individual employee purchasing requirements are well-defined in order to avoid possible later problems.
With all of these caveats, are business credit cards ever a good idea? Absolutely: these caveats represent only a few problems, nothing compared to the wealth of tools a good small business credit card can provide for a burgeoning small business. A good business credit card can--and usually does--simplify inventory management and tax reporting, allow employees a greater degree of autonomy on travel, make e-commerce easy, and, depending on "rewards" or travel mileage options, can even directly offset a large share of the expenses for some businesses. So yes, a small business credit card is, in the majority of cases, the smart choice for a small business. But as with all financial matters, care should be taken to determine when that smart choice should be made, or whether the business is structured to take full advantage of it.
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