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Other links: Cleaning Up Your Credit
Lots of small and medium-sized businesses use credit cards as defacto lines of credit albeit very expensive ones -- to pay for everything from soft drinks for the lunchroom refrigerator to round-the-world travel for execs on trade missions.
If your business can get its "own" credit cards, get them and use them. If not (like maybe the biz is too young) you'll have to use your personal credit cards. You can use the checks some credit cards provide, but beware, check and cash advance fees and interest rates can be daunting, so look before you leap.
Tales of steely-nerved entrepreneurs who racked up as much as $100,000 on multiple cards -- even paying employees with cash advances from their cards -- are legendary though awfully scary. But even financially prudent folks use credit cards to get over a financial hump, pay for a much-needed piece of equipment, or come up with a prototype for a product that must get to market quickly -- not to mention just to keep better track of expenditures with the "paper trail" credit cards provide.
Don't use credit cards:
Unsolicited credit card applications may clog your mailbox daily, but you'll need a respectable credit history to get one. Behind every credit card is a lender who's perfectly serious about getting the money back.
Don't apply for a lot of cards all at once. It will scare off the most desirable credit card lenders, because they'll see all those requests on your credit report.
Select a credit card that works best for what you're going to use it for and how you'll pay it off. Some cards have higher interest rates but lower annual fees: this is good if you're going to pay off the balance in full every month. Look for lower interest rates, even if there are higher annual fees, when you know you'll only be paying a portion of your total outstanding bill.
Look at what perks come with the card and whether you'll really use them. Frequent flyer miles sound good, but will you pay a higher interest rate or higher fees to rack up miles you may not be able to use?
If you're thinking of starting a business, get new credit cards and increase your credit limits now while you're still employed. Once you take the plunge to become your own "employer" it'll be harder to get as much credit. You can always drop some later to make room for those seductive introductory "deals" you're always getting in the mail.
Read the fine print, then call each credit card company to be absolutely certain you understand all aspects of their "deal" -- like which types of expenses their low introductory rates applies to, what the fee for using a credit card "check" or cash advance is (you could pay $0 or $10 or $400 for the same thing, depending on which card you use), and what perks you really get.
Remember, you'll only get a certain total cap of credit from all your credit cards put together (they all refer to the same credit report), so don't get carried away imagining you can finance your entire new business on credit cards. And also, keep in mind that you've got to come up with a way to pay what you take out back -- usually at quite a hefty price.
Every entrepreneur needs emergency cash sometime. But poorly managed, credit card debt can turn into financial junk food, stunting the growth of your company through paying exorbitant interest rates. And getting in over your head with credit cards can tarnish your credit history and make it harder to qualify later for loans from banks and other lenders.
Really high interest rates, which typically range from 15 to 22 percent -- regardless of the prime rate. (Be sure keep track of the interest you're paying on business expenses put on plastic and deduct it just like any commercial loan when you figure out your income taxes.)
The right hand not knowing what the left hand is doing. If several employees have cards on which they're charging business expenses, or even their own cards under your corporate account, you could end up with a shock when the statement comes.
Beware of mixing personal and business expenses on the same card. Get a second card, even if it is from the same source, to simplify bookkeeping and make sure that you aren't accidentally charging the company for personal expenses.
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