Compared to hard-to-get business loans, business credit cards are easily available. But that can be a double-edged sword: Because they’re easy to get, they’re easy to abuse. To avoid being stung by business credit cards:
• Be vigilant about avoiding penalties and fees. Although late-payment penalties aren’t particularly high for many small businesses, they do add up to a collective $2.9 billion a year for those firms, according to American Express OPEN.
• Watch out for those introductory offers promising no interest until a certain date. Keep a close eye on when the interest rate will soar from 0 percent to more than 10 percent or more. “Some small business owners see the myriad special offers from creditors, apply for and gain credit, and use it without attention to the fine print,” says Vickie Mauldin, executive director of the First Command Educational Foundation, a Fort Worth, Texas, nonprofit that promotes financial literacy.
• Look for cards that offer rewards, such as cash-back bonuses, airline miles and special discounts. “Small business owners love it when they ‘make money’ on what they spend,” small business strategist and author Romanus Wolter says.
• Do not mix personal and business spending on your company accounts, recommends Michael McAuliffe, president of the nonprofit Family Credit Counseling Service of Chicago. Mixing the two can make it difficult at tax time to discern between business and personal expenses, he says.
• Know your limits. A business owner may have several credit cards with a combined credit limit of $75,000, but he or she may be unable to manage more than $25,000 worth of debt, advises Gene Fairbrother, lead small business consultant at the National Association for the Self-Employed.
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