Credit Cards and Small Businesses

Francine L. Huff
LoanBiz Columnist

Many small business owners use credit cards to bootstrap their way to success. But the ailing economy and high levels of personal debt are causing many people to miss payments on business credit cards.  Here's a rundown of what's going on with small business credit cards and what people can do to make sure they manage them properly.

 

Late Payments

More business owners are finding it tough to keep up with payments on personal and business credit cards. As a result, companies that issue business cards have had to write off some bad debts. For example, Bank of America wrote off 5.57% of its domestic small-business portfolio in 2007, and much of that was related to credit card loans, according to the Washington Post.

 

Cautious Lenders

The troubled economy has lenders becoming more careful about whom they approve for credit cards. As small business owners have a tougher time making payments on mortgages and other personal debts, they're more at risk of having trouble paying on lines of credit if business drops off. However, an individual's personal credit report may not show business credit card debt, so they still might be able to qualify for more cards.

 

Credit Card Management

So what should business owners do to avoid getting in over their heads with credit cards?

 

• Keep business and personal credit card transactions separate. Not only will this help at tax time, but it will show that a small business owner is running a legitimate company. A credit card that itemizes purchases can help business owners put together reports that will help them track important information about their company.
• Choose the right rewards programs. It's important for small companies to choose a card that offers discounts and other perks that are relevant to their business. That could include cash back, airline tickets, hotel stays, or discounted office supplies.
• Look for business credit cards offered by the bank where they have other accounts.
• Avoid taking cash advances on business credit cards since they usually include fees and other costs.
• Pay monthly bills on time to avoid late fees.

 

Handling a credit card responsibly can help a small business grow. But as with personal credit cards, it's important to monitor spending and make wise choices to avoid getting into a financial mess, but if you find your debts overwhelming, check out all you options including debt consolidation and find a reputable lender who can help.

 

Sources

Washington Post

"Pulled Under by Plastic," by Simone Baribeau, www.washingtonpost.com.

About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.