The decision to acquire a credit card for your company is a good business decision.
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But if you think that little piece of plastic is going to solve all your problems, you've got another thought coming. In fact, a small business credit card can unleash a whole new set of problems on your business – unless you are aware of the mistakes you can make ahead of time.
In some ways, credit cards are a deceptive form of financing. It's easy to forget that each charge is essentially a loan that is subject to preset limitations and repayment terms. You wouldn't treat a commercial loan casually, so don't treat your company credit card casually, either. Instead, give your credit card account the same level of consideration as any other loan and make sure your employees do the same.
Don't mix business and personal accounts.
The reason you got a small business credit card was because you wanted a credit card account dedicated to business-related purchases. Then why would you even think about making some company purchases on your business card and some on your personal card?
In addition to creating an accounting nightmare, mingling purchases on business and personal cards can create a red flag on the books. If you max out your business card apply for a higher spending limit, but don't put the excess on your personal card unless it is a genuine emergency.
Don't fall for rewards over rates.
Credit card companies use extraordinary perks and rewards to entice small business owners to sign on to high rate cards. Rewards can range from free airline miles to deep discounts on products your business uses every day. But unless you can realistically justify paying a higher interest rate in exchange for the rewards that you will actually use, don't fall for it. If you plan on carrying a balance on your account, it's hard to go wrong by shopping for the lowest rate you can find.
Look for the small print.
Credit cards are notorious for hiding big details in small print. One of the most important things to consider is whether your rate is only valid for an introductory time period or whether it is a permanent rate. Also, pay attention to what happens if you make a late payment. Some cards automatically jack up your interest rate even if you only pay late once.
Limit cash advances.
Many business owners don't realize that cash advances are subject to much higher rates than ordinary purchases. And here's the real catch: The money you withdraw on a cash advance is the last balance to be repaid on your account. In other words, your monthly payments automatically go toward the reduction of your ordinary purchase balance, leaving your cash advance untouched and accruing more interest until the account is paid in full.
The sheer number of credit card offers you receive can tempt you to jump from one credit card to another just to take advantage of introductory rates and rewards. What you might not know is that frequent card-hopping can have a detrimental impact on your credit rating. Your best bet is to select a card you can live with and stick with it.