In this digital world where technology is advancing every day and changing customer’s liking, businesses also need to adopt new technological and competitive ways to survive in this environment. Cash transactions are decreasing every day because of the credit cards that let you pay money by just swiping into a payment terminal. A business credit card is similar to a consumer credit card, but the only difference is that it is used solely for business purposes. There are numerous business credit cards available that can help you manage personal and business expenses easily.
Business Credit Card Operations
Almost all credit card companies offer specific credit cards for businesses. The application procedure for getting such cards is similar to a standard credit card application. Business owners can easily apply for a business credit card as it does not require an employer identification number (EIN) and they acquire their credit card easily. It is highly beneficial for small business owners.
If business owners have an established company, they can apply for a credit card with the EIN of that company and if they do not possess any, they can apply by using their personal security number. Banks start analyzing all the business information mentioned in the credit card application and decide accordingly. Businesses develop their credit history from their credit card and all the activities are recorded in the business’s credit report which is provided by the bank after a specific duration.
Pros of Business Credit Cards
Business credit cards have so many advantages compared to consumer cards because some of them are particular reward credit cards issued based on the spending pattern of the company. These cards provide various offers and facilities to businesses that help them manage their expenses easily. Here are some most important advantages that business credit cards offer:
1. Effective Management of Expenses
Business credit cards provide ease in managing various business expenses. By providing numerous benefits to their credit cards, these cards enable businesses to keep their business transactions separate from their expenses. This separation between two accounts is highly beneficial for keeping financial records and tax purposes. These cards also allow business employees to execute financial transactions and owners can monitor their employee’s financial activities.
2. Exceptional Offers
Business credit cards provide so many valuable offers to businesses that attract more business owners to adopt a business card. These offers differ from the ones offered to its general customers. These offers include cashback on purchasing something from a store if it is a business-related product. These cards also offer huge signup bonuses to business owners as compared to individual credit cards because businesses spend more money than individuals. Some cards also offer a 0% interest rate on their business credit cards for a limited duration.
Many cards provide travel offers that help businesses to overcome their traveling expenses. Business credit cards also allow business owners free exclusive access to airport lounges and obtain discounts while staying in a hotel during their business tours. Business owners also get offers to revise their repayment terms if the business’s cash flow is irregular.
3. Build Business Credit History
If you have no business credit history then you can build it by obtaining a business credit card. This helps you maintain your transaction records and build your credit history effectively. It also helps you in managing your credit utilization and actively knowing about your financial operations.
4. Flexible Cash Flows
If your business is irregular in managing cash flows then banks offer customized plans to pay your interest to them according to your ease. Sometimes you cannot collect cash for the installment of your loan, so banks offer flexibility in paying the installments to ease business according to their schedule. These flexibilities are for short durations only.
Cons of Business Credit Cards
There are so many disadvantages of business credit cards as they result in increased interest rates, reduced negotiating power, late payment penalties, limited access for startups, etc. Here are the disadvantages of business credit cards that business owners can face by holding business credit card:
1. Personal Guarantees
So many businesses do not meet the requirement criteria for credit scoring and other various analyses of their credit, so bank requires the personal guarantee of a business owner or any other individual that assures them by taking all the responsibility of that business if it faces loss in the future. It is a contract-based agreement for obtaining a business credit card to make their regular payments.
These agreements include personal guarantees for the business owner if they are unable to fulfill the eligibility criteria for getting a business credit card. Owners need to carefully analyze all the documents, terms, and conditions of banks before applying for a business credit card.
2. No Customer Protection
Banks do not offer protection services to business credit card holders. According to new rules and regulations adopted by banks, they are no longer offering protection services to their business credit card holders. Therefore, there is not any chance for a business to get a concession in interest rate, negotiations for late payments, etc. Banks are strict with businesses as they charge higher interest rates and do not offer any relaxation in payment methods.
Conclusion
Business credit cards help businesses in managing their expenses easily. Some cards provide reward points to businesses, and easy installments for repayments, etc. These business cards also have a lot of disadvantages as they acquire personal guarantees of individuals, high-interest rates, and increased annual fees. It could be troublesome for small businesses as it does not offer some key benefits to them because of the danger of financial loss due to its low chance of survival in the market. You can select a business credit card based on your financial and business needs by evaluating whether you will receive benefits from it or not.