Business Credit Cards – What You Should Know on Their Possible Disadvantages
The flexibility and convenience of using a credit card is often very appealing to business owners. Business credit cards offer rewards, discounts and a range of features that can help streamline business processes, however it is important to understand the possible drawbacks before taking on a business credit card.
Business credit cards can have higher interest rates than consumer cards. Many business credit cards have variable interest rates that can increase over time, making it difficult to predict how much you will be required to pay in interest on outstanding balances.
Late or Missed Payment Fees
Most business credit cards will charge hefty late or missed payment fees when payments are not made on time. These fees can be very costly and can significantly impact the bottom line of a business.
High Spending Limits
Business credit cards typically have higher spending limits than consumer cards. This can be very tempting and make it more difficult for business owners to stay within their assigned budget.
As a business owner, you want to make sure that you are protected from any personal liability should a problem arise. With business credit cards, however, you may be held personally liable for any debt incurred with the card.
Compounded Disadvantages with Multiple Credit Cards
Having multiple business credit cards can have a compounding effect on the drawbacks discussed above. The interest rates can be higher, late payment fees can be crippling, and the spending limits can be too high.
The benefits of using a business credit card can be significant and outweighed the potential disadvantages. Before taking on a business credit card it is important to consider:
- Interest rates – Most business credit cards have variable interest rates, so know what you are in for from the start
- Payment Fees – Make sure you know what fees you may be charged for missed or late payments
- Spending limits – With higher spending limits there is a need for further discipline to stay within budget
- Personal Liability – Make sure you understand what liability is present and what protection you may have
- Multi-Card Use – Multiple cards can compound the disadvantages discussed here, so use caution
By understanding the possible disadvantages of business credit cards, you can make an informed decision on if it is the right fit for you and your business.