If your small business is struggling to pay its credit card, it’s important that you take steps to address the situation. Not only will late or unpaid business credit card debt hurt your company’s ability to obtain future financing, but it could also hurt your personal credit rating. Fortunately, there are many steps you can take to avoid the worst consequences of struggling to pay your business credit card.
The Benefits of a Business Credit Card
As a business owner, you may have relied on credit cards to finance your business’ expenses or to purchase inventory. Business credit cards provide you with flexibility, convenience and the opportunity to struggling to pay commercial rent earn rewards like cash back or airline miles. However, misusing these valuable financial tools can result in your business becoming overextended and buried in debt.
Managing a business credit card can be challenging, but with the right planning and budgeting, it’s possible to keep your business finances under control. The following tips can help you avoid the pitfalls of overusing business credit cards:
Credit Card APR Increases
If you are late in making your minimum monthly payment, your business credit card account will be subject to an increased annual percentage rate (APR). This “penalty rate” is typically applied without warning and can have a significant impact on how much it costs for your business to carry a balance.
In addition to a higher APR, your card issuer will likely charge a late payment fee. You should make every effort to pay your business credit card balance in full each month to avoid these fees, as they can quickly add up and erode the value of your credit score.
Unless your business is incorporated, you will probably have to sign a personal guarantee in order to qualify for a business credit card. This puts the responsibility for repaying your business’ debts squarely on your shoulders. While there are some business credit cards that don’t require a personal guarantee, these products are often harder to qualify for and may come with higher interest rates than other business financing options.
The best business credit cards for startups often offer 0% APR intro periods, low or no annual fees and the option to transfer outstanding balances. These offers are especially helpful for new businesses that need to finance large purchases while keeping enough cash in reserve for day-to-day operations. Business lines of credit and small business loans are additional options for financing big-ticket items, but these products may have longer terms than credit cards. They may also come with stricter requirements when it comes to personal guarantees and other eligibility criteria.