Using a business credit card to manage daily expenses can be a great but it can become a liability for your business.
1. Choosing the Wrong Type of Credit Card
It's important to note that not all credit cards are created equal. Business credit cards and personal credit cards are different products that carry different legal protections and have a different impact on your credit score.
2. Mixing Business and Personal Expenses
You have to keep your business and personal spending separate. Failing to do so is a recipe for a headache come tax time, not to mention the potential for increased scrutiny from the IRS. One or two mix-ups turns into 10, and next thing you know--you're on a three-hour call with your bookkeeper, going line by line through every credit card statement. You definitely don't want to go there.
3. Spending Without a Plan
When you're first getting started with a small business--particularly with a shiny new high limit business credit card in hand--it's easy for every potential expense to feel like an absolute need.
There's nothing wrong with investing in your business in a smart, systematic way. But if you're busting out that business credit card day after day without a budget, a repayment plan, or any forethought about the return on your investment, you're setting yourself up for trouble ahead.
Even if you've found an introductory business credit card offer that gives you 0% APR, make sure you're paying attention to when that interest will kick in so that you can plan for full repayment before it starts catching up with you.
4. Ignoring Interest Rate Changes
When the introductory period ends, your interest rate will typically skyrocket up to at least 18 to 20 percent (and very often higher). When that happens, if you're sitting on a massive credit card balance, you'll be looking at a mountain of interest expenses.
And don't think you can just game the system, either. These introductory offers almost never apply to balance transfers from one card to another--so hopping from card to card keep your rates low isn't an option.
5. Getting Behind on Payments
It's a mistake that sounds so obvious in the abstract, but when you get down to the day to day of running your business, it happens way too easily.
You missed the email saying that your payment is due, or have an unexpected expense that takes priority. But even one late payment on your business credit card can have a devastating impact on your business and personal credit scores--and ultimately your long-term financing options.
Take the time to create a budget and a cash flow forecast, add payment reminders to your calendar, and if you're working with a team, make it clear who is responsible for making payments on time, every time.
6. Taking the Wrong Approach to Business Credit Card Rewards
Different business credit cards offer a wide array of awards opportunities for their customers that can save you money, make that entrepreneurial lifestyle a little more enjoyable, or both. But if you're not using them correctly, business credit card rewards can hurt you a lot more than they help.
To get the most mileage--literally or figuratively--out of your business credit card, approach rewards the same way you would any business transaction. Run the numbers, measure the returns, and look for the business credit card with the best combination of favorable interest rates, terms, and rewards that actually make sense for your business.