A business credit card, also known as revolving debt, functions similarly to the all-too-familiar personal credit cards. The difference is that these types of cards are issued to established enterprises that decide they need credit financing to grow. Enterprises can raise money through equity offerings as well as debt, but the hazard of equity funds is that the investor gains fractional ownership of an enterprise that can end up costing far more in foregone profits than the interest and fees characteristic of a credit card. Here, we will go over some differences between personal and business cards, as well as the benefits and starting points of using revolving debt to fuel enterprise growth.
Contrast with Personal Cards
Both card types operate on the principal of allowing spending up to some credit limit, with required monthly payments between the full amount spent and the minimum payment on the low end. Generally, a card dedicated to an enterprise will have much higher credit limits than personal credit cards. As far as cons, it must be admitted that card rates can change without much warning, as can payment due dates. Having said that, overall, these types of cards cards should be a considered as a serious and viable method of funding an enterprise. Not having to give up equity nor put up collateral gives a large amount of breathing room for new ventures to grow their brand and their revenues without dilution or excessive payment or asset commitments.
Specifically, the benefits of revolving debt devoted to businesses are as follows:
1. Spending is easier to track with a dedicated card as opposed to spending from accounts that are also used for personal purchases.
2. The entrepreneur’s personal credit profile is not affected by entrepreneurial credit spending.
3. As mentioned before, cards for entrepreneurial use have a much higher credit limit to facilitate startup and growth. This is emphasized because what can seem like a lot of money on a personal level is relatively tame in terms of business expenses. Remember, success depends on revenues from many customers, not just the entrepreneur’s direct translation of skill and dedication into money. The competition is against institutions that will fiercely compete on price as well as quality with the product/service on offer.
How to Start
Once it is decided that a revolving credit is the right way to go, apply smartly. Consider what features are most important to the needs of your venture. Some will prioritize discounts or cash back, others will look for travel rewards; yet others will want exceptionally high credit limits, low rates, and/or payment due date flexibility.
When beginning to spend with the card, keep in mind payment requirements, due dates, and most importantly, the true purpose of revolving debt: to act as an engine of growth. Though card perks and details matter, it is more important to execute the right operational and marketing plan and gain the right customers than it is to get the right cards.
Revolving debt does not take up equity, they do not obligate assets to a particular lender, and they do not demand relatively large monthly payments relative to spending. Revolving credit offers wonderful levels of flexibility. The particular card in question should be researched detail to offer the most useful benefits. Keep in mind that benefits refer to benefits that facilitate the growth of your enterprise. This may not coincide with personal benefits preferences, but it should be remembered that those benefits come with ownership of an enterprise that functions as an income and wealth generator for the owner.