Raising capital is always top of mind for entrepreneurs. If you can get it, a low cost small business loan and checking on your SBA loan qualifications are the best way to help fund growth initiatives.
However, there are times when a business credit card is necessary or offers valuable perks. Although the words “credit card” might sound scary, used responsibly it can be a good tool to build credit and track expenses. Here are 5 myths to help you determine if a business credit card is the right fit for you.
Myth #1: Business Credit Cards are Only for the Big Guys
You don’t need to be a giant enterprise to utilize a business credit card. You don’t even need to own a Corporation or LLC. You can qualify for a business credit card as a sole proprietor with just your social security number - no need for an EIN. However, if your name and SSN are on the application, you are liable for the debt, and your personal credit score may be affected.
Myth #2: Business Credit Expenses Aren’t Tax Deductible
Good news - some are! Annual fees, late fees, interest charges, swipe fees and other costs might be tax deductible. For more details, read 5 business credit-card fees that are tax-deductible. As always, check with a tax professional if you have any questions regarding your use of a business credit card and the possible implications at tax time.
Myth #3: Business Credit Cards Won’t Affect Your Personal Credit
It’s true – your business credit history is separate from your personal credit history. But most business credit cards require a personal guarantee, which means the business owner must submit a Social Security number and previous credit history to qualify.
So if you’re late making your business credit card payment (or you stop paying completely) your personal credit history will still be impacted. It’s important to keep your personal credit score up so you can qualify for best business credit card to meet your financing needs.
Myth #4: Using a Business Credit Card Makes Accounting Harder
Keeping track of finances can be a big headache for a business owner. But a business credit card makes it easier to track spending. If you use the business credit card for all your expenses, you will be able to see all your monthly spending on your monthly statement, without any need for calculation. Providing business credit cards for your employees is another great way to keep track of spending.
Myth #5: Business Credit Cards are the Best Way to Fund a Small Business
It’s all about the cost of funds here. Small business owners should strive to get the lowest rates with the longest payback terms and credit cards don’t fit the bill. The interest rate on business credit cards can range from 12.99% to 29.99%. That’s a lot of interest! If you qualify for a low-cost small business loan, your rate will be much lower. For example, an SBA loan from banks in the SmartBiz network has low rates of 4.75% - 7.00% (Prime Rate plus 1.5% to 3.75%) and a 10-year term. There are upsides to using a business credit card - credit cards are generally easier to qualify for than a small business loan and no collateral is required. Cards can also have rewards for spending and travel along with 0%-interest promotions. However, if you want to foster sustainable business growth, a low-cost small business loan is the way to go.
Are you looking for low-cost funds to shore up cash flow, hire employees, purchase equipment or add to inventory? Check out SmartBiz Loans. In about 5 minutes, you can discover if you’re qualified for an SBA loan with low rates and a 10-year payback term.