Business credit cards are invaluable tools that provide capital, expanding your business and helping you keep track of business expenses. Mingling business credit card funds and personal funds and expenses, however, can have devastating results. Below is an explanation of how a business credit card can be a valuable asset and the dangers it can pose.
Access to Funds
Fundamentally, business credit cards provide access to funds to pay for business expenses. Supplies, marketing or public relations expenses and other costs can be placed on the card. If you are just starting the company, these funds could be essential to operation. Additionally, using a credit card will build the company's credit standing, possibly making it easier to receive loans in the future.
The card itself, though, does not know the reason behind the charges you make and cannot refuse to accept a charge if it is unrelated to your business. Because of this, it is extremely important to keep these funds separate from your personal expenses. Sometimes, it can be tempting to use the available funds on the business credit card for personal items, but actually doing so can have drastic consequences.
Putting non-business expenses on the card co-mingles funds, making record keeping more difficult. Also, using the card for personal expenses could result in creating too much debt for your business to carry, putting its operating expenses too far in the red. Eventually, if co-mingling costs becomes extreme, your business could possibly fail.
One of the best aspects is the ease of delineating funds in the future. Electronic viewing and downloading if credit card charges makes it extremely easy to keep track of company expenses and see exactly where you are spending the most and least funds. Also, should you slip and mingle your personal funds with the credit card funds, you will be able to separate the two easily and pay off that amount you owe the business.
During tax season or if your company is required to file quarterly or yearly reports, this delineation will make the job much easier. All the information you need to use in your taxes or reports will be directly at hand and possibly can be cut and pasted.
Business credit cards also enable you to expand your business in the future should you desire to do so. By providing extra capitol, you will be able to purchase more materials or products. Additionally, should you want to hire an employee, you can divert some cash to paying the employee's salary and still have access to those funds by using the credit card.
Another little known benefit of a business credit card is its ability to be used for grant or loan applications. By showing the consistently good use and payment history of the card, it may be easier for you to be approved for a loan, possibly even at a lower interest rate, or receive grant funds. However, this requires you to not co-mingle your personal funds or expenses on the card, because doing so will make your business appear unstable and possibly destroy your application.