Seven Credit Card Blunders Small Business Owners Should Avoid
According to the U.S. Census Bureau and Labor Department, only about a third of startups actually survive past their 10-year mark with only a quarter lasting until their 15th.
In order to increase your business’s survival odds, take a look at your financial situation, especially your credit situation. Two of the biggest monetary pitfalls businesses fall into are both credit related:
- Not using credit enough, and
- Using credit too much
Here are seven of the most common credit card mistakes businesses should avoid in order to create a stable financial future:
- Personal Credit
Many business owners forget that credit lenders pull personal credit reports when making business-card approvals. To a lender, the small business’s owner is the small business. It is crucial for business owners to maximize their own credit score before applying for a business card. Thus, if you have significant debt looming over your head, look to consolidate debt into one business transfer credit card. Jeffrey Weber of SmallBusinessTransfers.com notes, “Balance transfer credit cards alleviate the stress of credit card debt because they offer one payment plan with a lower interest fee than typical credit cards.”
Also, order a free copy of your credit score in order to understand where you sit on the credit spectrum. Additionally, you can check for inaccuracies that could be weighing your credit score down.
- Leveraging Credit too Early:
According to research from the Ewing Marion Kauffman Foundation, typically every $1,000 in credit-card debt that a small business takes on, its chances of long-term survival increasingly decline by 2 percent. Too many businesses try to expand far too early, and they end up racking up more debt than they can pay off.
- Small-Business Card
Many people are under the assumption that a business credit card is the best option for a small business. However, if you make purchases you cannot pay off within a single billing period, it is actually better to use a personal credit card. Lenders cannot increase interest rates on personal-card balances if you cannot make a payment in 60 days like they can on a business credit card. If you miss a payment, you could face an increase in interest that could cripple your business financially.
- Ignoring Rewards
Small-business credit cards offer rewards that can ultimately save your business a pretty penny in the long run. From hundreds of dollars in free cash or points to free mileage for business traveling, there are plenty of ways you can rack up rewards just for using your credit card.
- Fraud
Many businesses either leave the security aspect of their business lax, or they forego it all together, which can result in credit fraud that can severely damage the company’s financials to a state where the company cannot recover. Avoid leaving important financial documents in locations where employees can see them, be careful about how much financial information you give away to clients and vendors, and keep track of your credit transactions.
Use your credit cards wisely in order to see your business through its next 20 years.