Top 7 Reasons Why Every Business Owner Should Get Business Credit
The convenience of using a credit card to pay for everything cannot be stressed enough. You do not have to carry cash; they don’t charge you anything if you pay the credit card bill within time and you don’t have to wait to buy things until you receive your paycheck or cash.
Similarly, business credit cards can help business owners in this cashless society enjoy some incredible perks. Credit is the backbone of a business; it can help business owners to make payments when they are running short on cash occasionally while building business credit that can help them grow business.
Business Credit
What is Business Credit?
Business Credit is defined as credit extended by one business (the creditor) to another business (the borrower). When a creditor extends credit to a borrower, the borrower can buy or lease equipment, purchase goods, inventory, or services and defer payment for those purchases over time. Business credit helps the business owner keep more cash on hand for other operating expenses and emergencies.
Just like you have a personal credit score, which shows how good you are with debt, business credit shows how good is your company with managing and repaying debt. Having a good credit history can open new doors for your business as your chances of securing a loan, getting a higher credit card limit, or any other debt instrument rise significantly.
Why Build Business Credit?
Good credit history reflects how responsibly you handle debt and consistently pay your debt obligations. Your business credit score can also help you impress lenders and investors and get them to invest in your business.
Having a good business credit means that your business will generally be seen as a less risky venture, and you will be offered a low interest rate by banks and lenders. Even if you don’t need funding right now, it may need more funds in the next six months or a year when you come across a growth opportunity or the sales drop. Having good business credit creates a net so if your business gets in trouble, you already have a backup strategy.
It also allows you to keep your name out of business matters and the business liabilities are owned by the business, as it is a separate entity. So, even if your business goes through a tough time for some reason, where it falls behind on debt payments or declares bankruptcy, it won’t hurt your personal credit score.
Along with some obvious benefits like low interest or interest-free borrowing, here are 7 reasons why you should get a business credit card to build business credit:
Budgeting Becomes Easier
Budgeting can be a difficult task when you don’t have time to record every single transaction but you are constantly paying money left and right. When you pay through a business credit card for business expenses, you don’t mingle your personal and business expenses. This way, making a budget and tracking your expenses is much easier and hassle-free. You can look at what you have withdrawn each month and where you have spent the money. Tracking and budgeting are way easier when using a business credit card.
Theft protection
Credit cards are convenient for paying when you are on the go. When you are traveling for business activities, if you lose your wallet, money, or any valuable item, it probably won’t come back but if you lose your credit card, you can freeze it within minutes. Compare a $100 bill with a credit card, you can get another credit card if you lose it but the stolen $100 bill is never coming back. This is why paying with a credit card helps you avoid unwanted surprises.
Qualify for Bank Loans
Not having a well-established business credit reputation can decrease your chances of getting a business loan approved. When you get a credit card and regularly use it to pay business expenses and pay back the money on time, you are creating good credit history that adds more credit points to your credit score.
Even if you don’t need a credit card, buy one and use it to pay for gas, utility bills, and other minimal expenses here and there. Pay the money back, in time and your credit points will start rising, so you can easily get approved for the business loan you had been planning to take for a while.
Building credit history with a credit card is a better option than taking out a loan because with business credit cards you don’t have to pay any interest if you make payments within 30 days.
Easy Auditing and Tax Filing
Just like a separate business credit card is great for budgeting in business, it is also great for keeping all your financial and accounting records in one place. It makes tax filing easier because the expenses are recorded in one place and not intermingled with your personal expenses. So, having a separate business credit card can help you keep business matters aside, especially for audits, tax preparation, and keeping your business accounting records updated.
Purchase Protection and Insurance
Insured credit cards allow users to enjoy purchase insurance free of charge for a fixed time period. If you pay for items using your business credit card and they get either stolen or lost, you can apply for compensation. Also, if a supplier or vendor sells you a faulty item or defrauds you in some other way when selling the item, you will be insured to get your money back. Although the insurance coverage is not very high it is free of cost so why not benefit from it?
Discounts and Bonuses
Business credit cards also give you several discount offers and bonuses to get more people to buy their credit cards. The percentage of discounts highly depends upon the credit card and limit you choose. You can avail great discounts on certain airlines while traveling for business or dine at restaurants with business affiliates where you are offered discounts. You can get hotel discounts, frequent flyer miles, rebates, and cash back when you regularly use your credit card for business purchases. These discounts and bonuses can help you save a substantial amount of money in the long term.
Credit Card Payments Only
Not all businesses accept cash payments. Some business firms take payments from credit cards to increase transparency and avoid the risk of stealing and fraud associated with money. When buying from such businesses, you might have to pay with a personal credit card if you don’t have a business credit card. Obtain a business credit card that keeps your business finances separate from your finances.