Editorial Policy

Business Credit Cards Pros and Cons

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By Eva Norlyk Smith, Ph.D.
June 24, 2009

Credit cards have long provided an easy avenue for entrepreneurs to fund start-up ventures, from businesses to movie productions. Google founders Larry Page and Sergey Brin are reported to have used credit cards to help finance their first purchase of computers and office equipment. Filmmaker Robert Townsend came up with $40,000 of the movie Hollywood Shuffle’s $100,000 budget by charging expenses to ten credit cards.

The list goes on. According to a 2008 survey by the National Small Business Association, credit cards are one of the main sources of funding for small businesses. A full 44 percent of small businesses reported having used credit cards to fill in their capital needs. The smaller the company, the greater the reliance on credit cards.

Credit cards have many obvious advantages as a source of business funding because of the easy access to cash they offer. When in need of capital for emergency purchases or a cash infusion to prevent cash flow problems, credit cards offer an easy way to tide small business owners over until other funds come in.

Business credit cards are specifically tailored to the meet the needs of businesses and they offer some additional advantages over personal credit cards.

  • Business credit cards come with a larger credit line. It is not unusual for an initial credit line on a business credit card to start at $15,000 or higher, reflecting a business owner’s need to charge more than regular consumers. Some business charge cards don’t carry spending limits at all.
  • Business credit cards simplify accounting. Having a separate business credit card for business expenses makes it easy for small business owners to keep business and personal expenses separate, an essential accounting practice. By charging business expenses to a credit card, expense accounting can be done instantly by simply downloading the card info from the card issuer’s website into accounting software. The software will even assign expense categories, removing much time and hassle from basic bookkeeping tasks.
  • With business credit cards, it’s easy to put curbs on employee expenditures. Small business owners can get additional cards for employees to simplify the management of employee expenditures. Business owners can then set spending limits for each employee and even specify which categories of expenditures are allowed.
  • Business credit cards make it easier to keep track of spending. Knowing where your money goes and staying on top of day to day expenditures is important. By using a business credit card for both general business expenditures and employee expenditures, all transactions will be in one place, and easily accessible in online.
  • Business credit card perks don’t hurt either. Most business credit cards come with additional perks and rewards, such as free travel points, a statement credit, gift cards, free merchandise, and more. And of course, when employees’ expenditures are charged to the business credit card as well, rewards can quickly add up.

Despite all the benefits, using credit cards to help finance a small business venture has one big downside: Credit cards offer a very volatile source of financing. With credit cards, the rules can be changed at any time, for any reason. Credit limits can get slashed, interest rates increased, and minimum payments doubled.

In short, small business owners should be wary of relying on business credit cards as a significant part of business financing, particularly in today’s financial climate. Still, when used wisely and with caution, business credit cards can be an important ally for a small business.