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Credit Cards
1. How can I use credit cards to
finance my business?
2. Who's this good for?
3. When is this the best choice
for me?
4. When is this not advised?
5. Tips for getting approved.
6. Ingredients you'll need on
hand.
7. Watch out for!
8. Idea Cafe Tips.
Other links: Cleaning Up Your
Credit
 1.
How can I use my credit cards to finance my business?
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.
2. Who is this good for?
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.
3. When is this the best choice
for me?
- For last minute purchases or unexpected expenses, such as a
new computer for the boy wonder you just hired
- For short-term expenses you'll be able to repay quickly
- To control cash flow, like when you want to isolate all travel
and entertainment expenses on a certain piece of plastic to keep
cash from dribbling out of another fund
4. When is this not advised?
Don't use credit cards:
- As your sole means of financing for the business
- When you have the time to go after a cheaper source of debt,
such as a bank line of credit
- If you don't have the time or inclination to monitor every
credit card bill meticulously, so you're constantly aware of how
much you are racking up in fees and interest
5. Tips for
getting approved
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?
6.
Ingredients you'll need on hand
- A pen to fill out the application forms that come endlessly
in the mail
- A detail-oriented approach that can keep you out of trouble
- A fairly current credit report, so you know where you stand
- The realistic knowledge that real (non-plastic) money will
be coming in soon to pay off these plastic credit debts
7. Idea Cafe Tips
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.
8. Watch
out for!
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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