Growth can be a friend or foe when it comes to establishing credit.
Sydney Warner, with First Mortgage Company of Idaho, knows too well what poor credit card use can do to commercial property buyers.
“We recently received a warning of a fraudulent company (Freedom 1st National Bank) that offered credit under a semi-secured status,” she says. “Now, we’re telling all our clients to investigate, understand special offers and terms, and to lay down the limitations with employees.”
Learning to select a card and properly use it can make a difference in a company’s credit report, especially sole proprietorships, she says.
Studies show that about 6 percent of small business operational transactions involve a credit card. A business credit card can make life easier for owners and employees. In addition to convenience, it helps track business expenses, employee spending and budgeting.
So, understanding the basics of a small business and corporate credit card is essential. As it implies, a corporate credit card is for large businesses and corporations, and the burden of debt is on the corporation. A business credit card is intended for smaller businesses with sole-proprietors, and the burden of debt is on the owner.
A business credit card is similar to a personal credit card and carries a credit limit and minimum monthly payment. Business owners and any employee authorized to use the card must undergo a credit check.
There also are reloadable debit cards that allow a business to spend up to a pre-deposited amount. This card gives control over spending.
The secured and semi-secured credit cards give users with poor or bad credit an option to turn it around and make on-time payments. Typically, it starts as a secured card — credit limit equals the deposited amount — with the credit line extended over time.
Here are tips from the Better Business Bureau:
Do your research. Many banks and credit card companies make offers with attractive perks that may fit nicely with your business needs. But offers run the gamut, so be choosy. You’ll want to find out about offers from your local banks and from national credit card companies.
Don’t get burned by special offers. As noted, there are many offers and plans available for small business, but pay specific attention to business credit card plans with introductory offers for 0 percent APR. While this may be a good option for an immediate high-end purchase to support your business, you need to find out under what conditions the APR will increase, and what your options are if it does rise. Beware of getting stuck with a high APR after the introductory period.
Consider the rewards. Many cards will offer perks for both you and your employees, including discounts with preferred vendors and airlines.
Lay the ground rules. Make sure your employees know exactly what can and cannot be charged on the credit card. Some cards will let you adjust the credit limit on individual employee cards, as well as limit where the cards can be used.