What types of credit facilities should entrepreneurs apply for?

Credit cards are a nifty way to finance day-to-day business expenses, but failure to do your research could cost you dearly in the long run…

Entrepreneurs are typically creative visionaries who need financing. Big, bold ideas often go unnoticed if entrepreneurs cannot convince backers to invest.

Once a business has received some juice to drive its operations, it requires additional cash flow in the form of credit. Business owners routinely decide upon credit cards as a viable means of greasing the proverbial wheels for day-to-day expenses, and to establish a credit profile.

However, it’s imperative to conduct the necessary research before applying for a credit card. Entrepreneurs who don’t do their homework end up paying dearly.

What is the right credit card for your company’s needs?

Credit cards are the most common lines of credit available to businesses. It could prove costly by selecting the wrong credit card for your company’s needs. For starters, your credit score may be adversely affected and you may be saddled with high interest charges on outstanding balances.

Failure to read the requisite terms and conditions may result in you paying a high annual fee, or a higher interest rate at the end of the agreed-upon term. By conducting the necessary research upfront, you will avoid these nasty surprises and be able to plan more effectively for your business financing requirements.

Many entrepreneurs can benefit immeasurably from choosing the right credit cards for their business needs. For starters, there are many perks, rewards, and special offers available to account holders based on the card you have selected. There is no one-size-fits-all policy for UK account holders, given that there are so many different types of credit cards and credit institutions.

Certain companies may prefer lines of credit offering entertainment perks for restaurants, shows, and concerts. Other businesses may enjoy the perks associated with frequent flyer miles, travel-related discounts, free stays in hotels etc. All in all, it’s important that the credit card you have chosen allows your business to grow. The risks of choosing the wrong card include lost opportunities for cashback, rewards, and exclusive perks.

What are the most common mistakes with choosing credit cards?

Credit card companies try to lure business owners with promises of low annual fees, low annual percentage rates (APRs), and high cashback percentages. Cashback is great on the proviso that it is associated with a credit card with a low APR.

The APR is the annual percentage rate – the interest rate – on the revolving credit facilities. High cashback on a high APR credit card is worthless. It simply means that you will get a little bit more back than a typical card, but pay a whole lot more for that privilege. Your best bet is 0% APR for 12 months or 18 months and lower cashback, or 0% APR for 12 months or 18 months and standard cashback (1.5% – 2.5%).

Another big mistake with credit cards is exhausting all your available credit too quickly. The higher your credit utilisation, the lower your credit availability. This also negatively impacts your credit score. The best practice for managing business credit facilities is to repay the outstanding balance in full every month, benefit from the cashback features, and not carry over any balance to the next month.

Remember, business and personal credit cards work on a revolving credit system. This means you’re paying interest on your interest. If the full payment is not made every month, a portion of the unpaid balance will incur interest upon interest. This continues and compounds every month.

What do the professionals say about credit card selection?

CreditLoan.com provides expert advice on all credit-related things. Credit cards are particularly notable in this regard. For starters, there is a misconception in the business world that a company credit card can be mismanaged without any ill effects for the company owner. This is patently false.

While there are limited liability issues with respect to a company’s identity and that of the owner, careful credit card management is essential. As an aspirant entrepreneur it is important to understand your duties and responsibilities with lines of credit. Just because it’s a company card, doesn’t mean that the company bears all the responsibility and the entrepreneur bears none.

As far as annual fees go, this is certainly a factor to bear in mind with credit cards. Many credit cards come with £0 in annual fees, but some can be several hundred pounds per year. American Express business cards are typically associated with high annual fees, so unless you need the benefits they provide, avoid those types of credit cards.

You may also wish to rethink balance transfers as they don’t always reduce your debt burden. Sometimes, the costs of transferring an existing balance to another account outweigh the benefits. These are some of the most common mistakes that you will encounter when selecting credit cards and working with them. Be sure to consider all your options before signing on the dotted line.