For many small businesses, a business credit card is an essential tool for managing cash flow for everyday businesses expenses, including purchasing inventory and business supplies. While some small businesses are hesitant to take on credit card debt, there are several advantages that a business credit card provides to a merchant’s business.
Improved Purchasing Power
With a business credit card, a merchant or other small business can take advantage of volume discounts for inventory or supplies, quickly acquire inventory to meet demand, revamp the eCommerce site to boost sales or have money for other actions that will boost the revenue of the
business and boost profits. The small amount of interest paid to borrow for a short-term need can pale in comparison to the additional revenue.
A business credit card will even able you to have the money interest-free for a short period. Interest won’t start accruing until the statement closes. So if the statement closes on the first of the month, and the business buys inventory on the second, there will be no interest on the purchase until the first of the next month. Depending on the amount of the purchase and the revenue of the business, it’s possible the entire balance can be paid before any interest accrues.
Easier, Faster Access to Credit
Businesses can qualify for a business credit card much more easily than they can for a small business loan. The application process for a business credit card is extremely simple, and the approval decision is made quickly. With a business loan, on the other hand, and there is quite a bit of paperwork, meaning time not only to fill it out but to obtain any supporting financial statements or other documentation. The loan application might need approval from multiple people, further delaying the process. Also, as mentioned earlier, the small business credit card enables you to pay it down at your own pace, meaning you have better control of the amount of interest you will pay for a given period.
You can pay down the credit card, then use the credit again when another opportunity presents itself. With a business loan, the payments or more structured, prepayments may or may not be permitted, and if another opportunity presents itself, you will need to apply for another business loan, going
through the paperwork and decision waiting game once again.
Business loans do have their place. There are some purchases, like an expensive piece of equipment, that can be funded through a business loan. But first, the business will need a sufficient credit history and credit score to qualify for the loan.
The business credit card enables the business to make several smaller purchases – as well as some larger ones — to quickly build a favorable credit history and credit score to help the business qualify for a business loan – at favorable rates – when the need arises.
Controlled Delegation of Business Spending
A very small merchant may handle all of the spending for the business, but as the company grows, the owner needs to spend the time where it has the most impact, not on some of the minor spending decisions, like a ream of paper or toner for the printer. The owner can use the business credit card account to allocate limited purchasing power to trusted employees.
For example, a lead administrative assistant may have a monthly spending limit of $150, a middle manager may have a limit of $250, and a senior executive $1,000. Each can use the card to make purchases up to the individual limits.
The business owner still has oversight and can cancel or change the spending limits for any of the individuals at any time. By providing the cards to internal staff our outside salespeople (for gas, other travel expenses), the business retains control over the overall spending but can delegate much of the minutiae so that the merchant can concentrate on operating the business.
Separation of Business, Personal Expenses
While some start-ups will obtain initial funding from the owners own personal financial resources, it’s important to separate personal finances from business finances as much as possible.
The Internal Revenue Service has strict rules about mixing personal and business expenses. Using personal checks or a personal credit card makes your bookkeeping much tougher.
“When you run things on your personal credit, it’s a lot more complicated,” said G. Gerry Hays, professor of venture capital at the Indiana University Kelley School of Business.
Additionally, if you an incorporated business, but mix personal and business finances, the personal assets you thought were protected from business liability may not be. Mixing personal and business finances make it easier for someone trying to collect from you to “pierce the corporate veil” and go after personal assets.
“It’s important to extract yourself from the risk of the business,” Hays said. “It’s important to establish a relationship with a credit provider so you can de-risk yourself as soon as you can.”
That being said, the small business still needs to use the credit wisely. There are plenty of good reasons to access business credit. But simply adding inventory without regard to how well it is turning over or buying technology without careful consideration to how it can help bring a return on investment – even if not immediately.
The PayVus Solution
PayVus® is a bundled business solution combining card acceptance and a business credit card into one single product— which helps you better manage cash flow and make accepting cards more cost-effective. By enrolling in the program, you will receive all the benefits of being issued a MasterCard World Business Credit Card.
The PayVus business credit card offers qualified merchants up to a $10,000 line of credit to increase capacity to pay for supplies, buy inventory, and manage everyday business expenses.
Additionally, you can designate a portion of your daily settlement to be split between the PayVus credit card and regular bank account. Funds deposited to the credit card are posted as a credit balance and are available for immediate use. Your merchant acquirer can sign you up, and it is quick and easy, and within 5 business days of signup, PayVus can help you achieve your business goals faster.