Credit Cards

Tips, news, reviews, caveats, trends, updates and analysis related to consumer and business credit cards, and prepaid debit cards. From the interest rate specialists @ FedPrimeRate.com

Wednesday, October 29, 2008

Using Business Credit Cards To Make Ends Meet - A Growing Reality

image: credit crunch aheadIt’s reasonable to argue that small business owners are feeling the effects of the global credit crunch most of all. Small businesses use credit for capital purchases, operations, and payroll, so when banks stop lending, small business owners find themselves in hot water. This year’s stock market crash has sent the global economy into a tailspin, and the Congressional bailout plan hasn’t stabilized financial markets the way the Fed and the Bush administration hoped it would. Instead of using the money to sustain or increase lending, banks are using the bailout funds mostly as a cushion for their own operations, which is killing many small businesses. Big businesses and big banks made poor choices; now small businesses are left holding the bag.

That’s why business credit card usage is steadily increasing.

Many business owners are now using business credit cards to make equipment and inventory purchases to make up for their dwindling credit lines. Banks are not loaning as much as they used to and not nearly as often, so many small business owners have had to use credit cards to make up the difference.



The problem with using business credit cards like traditional lines of credit is that they are not designed to for that kind of usage. Business credit cards are supposed to be used for expenses in daily operations and minor purchases. However, these tough economic times are forcing business owners to make major purchases on credit cards, putting both their personal and business finances at greater risk. Most business cards require the cardholder to provide a personal guarantee, and all charge interest when balances are not paid off every month. It’s most likely that daily expenses will be covered monthly; however, running a business on credit cards costs the business more because of the interest and fees associated with credit cards.

So, what is a struggling business owner to do?

If you absolutely have to use business credit cards in non-traditional ways, you should get the best cards available. There are small business credit card resources that provide access to deals that allow business users to transfer balances with no fees and make new purchases with an introductory 0% APR. The rewards packages on many of these cards may also help you cut costs by making certain services and modes of transportation cheaper or even free. Performing a balance transfer to a new business card once or twice a year is an easy way to avoid paying interest on an outstanding balance, so it's a good idea to pay attention to all those snail mail business credit card offers you likely receive on a regular basis. Bottom line: if you can take advantage of favorable credit card offers when they are available, then you should.

Sooner or later the economy will recover, but until it does, small business credit cards may be the best financial tools available that can keep small business owners afloat.

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