Insights by Cathay

Many entrepreneurs start their businesses by putting expenditures on their personal credit cards.  But once your business begins to take off, so will your business expenses. Product and equipment costs will increase; your company will need office supplies and phone and internet connections; and if you or your employees travel on business, gas and other travel expenses are inevitable. Any mismanagement could consequently dent your personal credit.

That is when getting a business credit card might be advantageous for companies planning to grow. Common reasons to use a business credit card:

• It provides the convenience of centralizing all your business expenses in one place.
• It enables you to keep your business expenses separate from your personal purchases.
• It allows for multiple employee credit card issuance under one account, with individualized limits and the flexibility to change those limits.
• As the program administrator, the owner or a delegate can monitor the use of all the cards under one account.
• It gives you more purchasing power through higher spending credit limits to help with monthly cash flow.
• It offers reward programs when you use the card.

Another benefit to business credit cards is that they provide you with additional time to pay for business purchases. For example, inventory purchases made during the current statement cycle do not get settled until the following month when the statement payment is due. If paid in full, no interest will be due.

Considerations before choosing the ideal business credit card

When determining how to choose the business credit card that is most suitable for your business, start by creating a list of pros and cons based on the different card features available. The right choice can become a very useful tool for managing your budget and offering leverage when you need it.

Here are a few things you should consider when searching for a new business credit card:

• Interest rates: Many credit companies offer promotional rates on new cards, and some might not charge any interest at all. But if you miss a payment or cannot pay the total, it could result in a hefty interest fee.
• Rewards: Credit cards vary in their rewards programs and how points are awarded per dollar spent. Some programs will offer you more rewards based on types of purchases, such as travel or dining. But it is also important to consider what you can get in exchange for the rewards points and what you find is most beneficial to you— such as cash back, travel discounts, gift cards, or merchandise.
• Fees: Be mindful of costs associated with credit transactions. For example, if you are transferring the balance from a higher-interest credit card to another lower-interest one, you could be assessed a balance transfer fee. Another consideration might be a foreign transaction fee. These are charges associated with transactions made in a foreign country or currency.

How to manage credit card debt

A business credit card can be an invaluable resource for your company. But it is best to remember that it is only a tool and that its true value depends on how you use it. Below are four best practices for managing your business credit card:

1. Pay on time

Missed payments can result in interest charges and late fees that you would not have incurred if you keep your balance current. Paying early, in fact, might give your credit score a small boost.

Your best bet is to be organized. Develop a bill-paying schedule so that bills do not accumulate. Make paying bills on a set schedule part of your routine.

2. Pay it off

If you can afford to pay the full balance, it is in your best interest to do so. This will help you avoid any interest charges or take a hit on your credit score. Carrying a balance over one month could make it harder to pay down the balance the next month. It could also start you off on a slippery slope of credit card debt.

3. Keep it separate

As tempting as it may sound, you do not want to use your business credit card to make personal purchases. At best, it will complicate your accounting — business expenses can be tax-deductible, but personal purchases usually are not. Furthermore, using a business card for personal reasons is unethical and possibly illegal.

4. Consolidate your debt

If you are juggling multiple business debts, it would be a good idea to consider a small business loan. This streamlines all of your debt repayment under one monthly expenditure paid to a small business lender. Ideally, you would get a loan at a lower interest rate than your credit card .

Another option would be to refinance your debt by transferring it onto a credit card with a lower annual percentage rate — for example, an introductory offer might give you a 0% APR for a limited period.

Visit Cathay Bank for more information

A business credit card can be a quick and convenient way to finance your small business’s short-term needs. But as attractive as it might be, you should consider the pros and cons of all available options. You should also ensure that your business credit card is being carefully managed.

Cathay Bank offers business credit cards as unique as your company. Whether you need more purchasing power or spending management, Cathay Bank’s credit card options can enhance your business.