Small business credit cards are given to small business owners to finance their company’s activities. They can be good for making payments over a distance or internationally, or for short-term borrowing, but they aren’t really as useful for long-term borrowing.
Because credit cards are so widely accepted, a small business with plastic can purchase inventory or supplies from a wide variety of sources, and this can be particularly useful for buying products abroad through a cross-currency transaction. The credit card provider will make the currency exchange automatically, bypassing the need to arrange a bank draft, wire transfer, or overseas line of credit, which were previously necessary for purchases made across international borders.
Small business credit cards are also handy as a ready source of short-term finance. Short-term finance can be difficult for many small business owners to obtain, leaving them reliant on only the suppliers willing to advance them credit and raising their costs as a result. But as discussed, small business credit cards allow purchases to be made from just about anywhere, and even with the higher costs associated with credit card borrowing, can be a useful form of short-term credit resulting in lower overall costs. This can be particularly useful for large projects requiring up-front outlays while payment won’t be received for a month or two. Remember that credit cards were originally designed as a revolving line of credit, albeit within a consumer context.
However, credit cards are not necessarily the best source for long-term financing due to their high interest rates. Sometimes a credit card is the only financing available, but as a rule an effort should be made to find longer-term forms of credit such as loans. Through a good relationship with a bank and an understanding of other, preferable alternatives to credit cards, the business owner can lower what’s often an unnecessarily high cost of doing business.
Many businesses fail not through lack of customers but through difficulty in getting credit, or the cost of credit. Although credit cards are useful, they shouldn’t be the business owner’s sole source of credit due to their high cost.
