7 Reasons You Shouldn’t Run Your Business on Credit Cards
According to the economic report released at the end of 2014 by the National Small Business Association, at least 60 percent of small business owners admit to being greatly impacted by the so-called “Great Recession” of 2008. Many of those small business owners also acknowledged using credit cards to finance their business needs.
While plastic serves a purpose, it is also capable of driving small business owners deep into debt. 20 percent of business owners report they would like to transition away from credit cards as a means of financial support, but simply cannot afford to grow their business without the safeguard credit cards provide. Business credit cards are usually linked in some manner to your personal credit history;. If you fail to make your monthly payments, your FICO score may begin to fall..
- Credit cards are a short-term solution. The most financially savvy people only use credit cards for small purchases and pay off balances For instance, if you need to purchase office supplies or book travel expenses online, having a credit card can be very valuable. If you can’t afford to pay back the expense of an item within a short window of time, you should probably reconsider paying for it with a credit card.Business owners find themselves in trouble when they spend precious funds on unnecessary extras. It’s common for entrepreneurs to jump the gun when they find what appears to be a great opportunity. The expense is justified, we tell ourselves, because the return on investment will be much greater in the long run. However, statistics show that small business owners who use credit cards to make large, investment-oriented purchases tend to sink themselves deeper into unmanageable debt.
- Interest rates are sky high, and that doesn’t appear to be changing any time soon. When individuals are doing the math and determining how to repay debt, interest payments are the most common stumbling block. It’s difficult to predict just how much money is going to be taken off your business’ bottom line.
- You won’t increase your business credit history. If your card is tied to your personal finances, there will be no way to build your business credit history. It’s possible for you to use your credit card responsibly and even receive perks such as cash back and travel reward miles, but if you don’t keep up with your monthly payments, you could end up in over your head and carrying that burden on your personal credit record.
- The size of your business doesn’t matter to lenders. Many business owners assume that because they only employ two or three people, they won’t qualify for business lending. What will matter to your lender is your payment history. If you haven’t been responsible in the past with your personal credit card, lenders will take note. A low FICO score will potentially decrease your chances of getting credit for your small business.
- Not all cards are created equal. One of the advantages of having a business credit card on hand is that it allows you to make purchases quickly and easily. Many business owners point to credit cards as the best method of paying for small necessities like office supplies.However, card companies often charge additional fees to give you rewards each month, and if you don’t look carefully, you could end up paying extra for a feature you don’t even use. Some cards don’t have waivers of liability insurance. We have worked with business owners who were forced to terminate untrustworthy employees, and were still responsible for the employee’s misuse of the card.
- You spend more when you pay with a card. It’s true! Studies show that when you pay with a credit card, your brain does not register that you are spending money, as it would when you pay with cash or debit.
Habits can be difficult to break. If you’ve gotten used to running your business on credit cards, it might seem difficult—or even impossible—to consider an alternative. The good news is that debt accumulated through the use of credit cards is one of the easiest to minimize or eliminate. If you choose debt settlement as an option, it’s likely that you will be able to find debt relief quickly.