Credit Card Wisdom

Low bank approval rates for business loans have forced many entrepreneurs to use credit cards to bootstrap their businesses. The interest rates on loans are generally lower than credit cards, but you'll have to borrow a set amount of money. Borrowing more means more interest payments in the long run and the extra cash can increase the temptation to make unnecessary purchases.

Financing your business with credit cards also comes with its own associated risks. But if you're diligent, you can use credit to get your business off the ground. Before you apply for a new card, consider what financing with credit means and decide if it's right for you.

If you decide to use credit cards, here are seven tips for using them in your business.

Take advantage of zero-percent introductory offers

Keep your eyes open for zero-percent introductory offers that you can use to purchase big-ticket items like office furniture, computers, smartphones, and other gadgets. Some offers will give you as much as 24 months to repay your balance with no interest. The main drawback is that these offers are usually limited to personal credit cards, so you'll wind up using your personal line of credit for business.

Use the automatic-billing facility
Avoid late payment charges and other fees by enrolling your business utilities and other accounts for automatic bill payment. This will remove the hassle of monitoring several due dates and ensure that your bills are paid on time.

Pay your  bill on time
Ideally, you should pay the total amount due before the bill due date. Paying off the balance in full will help you to avoid interest charges, which will cut into your business profits. If you cannot pay off the balance in full, you should at least pay more than the minimum amount due.

It takes 2-3 working days for lenders to post your payment, so make your payments early - otherwise you'll be charged a late payment fee if your payment is posted after the due date. Apart from the fee, a late payment will affect your credit rating.

Maximize the float period
If you know the cut-off date on your credit card, you could time your purchases and improve your cash flow. The float period is the number of days from the time you purchase the item to the time you pay.

If you make purchase a couple days after your cut-off date, the transaction will appear on the next month's statement of account and give you 48-56 days to pay for your purchase. Time your purchases to delay your cash outflow.

Negotiate new terms
Your card's annual fee covers the lender's operational costs. Some cards waive the annual fee for the first year, but you can negotiate new terms with the lender after that period passes. If you made your payments on time and used the card responsibly, the lender may consider your request. Compare offers from other lenders and bring your findings to the table to strengthen your argument.

Use your credit card for operational expenses
Your statement will help you to keep track and analyze your business expenses and cash flow requirements, as long as you use the card for business purposes only. So use the card to pay for all your operational expenses, such as utilities, office supplies, gasoline, entertainment, and other expenses. At the end of the month, you'll only need to write one cheque to pay off the balance.

Use your card to act quickly in emergencies
Credit cards give you immediate access to funding if an emergency arises. That line of credit will help you act quickly if something unexpected happens - as long as your credit card is not maxed out. Charge your purchases instead of using the cash advance facility because interest rates on cash advances are higher than standard purchases. Make sure you devise a plan for repayment in order to avoid interest charges as much as possible.

Credit cards work well for a thriving business with a dependable monthly stream of revenue. Some cards come with useful reward programs that award points for business travel and office supplies purchases. However, your business must pay the entire balance in full every month to avoid accruing interest. This can be hard for new business owners who walk the thin line between optimism and reality. Use credit cards as an effective tool in your business, but remember to keep your feet firmly planted on the ground.

Protect Your Card

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