Are Credit Cards the Preferred Choice for Small Business Cash Flow?

As more small businesses face difficulties obtaining loans, credit cards are becoming a popular method that small business owners use to generate cash flow. Credit card incentives and rewards make them an appealing option, but are the rewards really worth it? Do the perks outweigh the interest rates?

Cash flow

Cash flow is a major concern for small business owners. An American Express survey revealed that 70 percent of small business owners are occasionally forced to use extreme measures to keep positive cash flow. Over one-third of respondents use credit cards to prevent shortages. Other methods include investing personal savings into the business, paying bills late, and borrowing money from family and friends.

Most small businesses have company credit cards. However, 70 percent of those surveyed were using personal credit cards to preserve cash flow. As banks decrease the amount of money available to small businesses, personal credit is being used to supplement income as companies wait for their invoices to be paid. From a business and tax standpoint, however, delving into personal credit is not always a wise decision.

Personal credit cards are tempting for small business owners to use because they may provide longer periods of time without interest, along with credit rewards. There is a problem with using personal credit cards. Personal credit cards are linked to your personal credit. Any issues with the card directly affect the small business owner's credit score. Business cards are linked to the business. The owner's personal assets are not affected by a business card.

Personal and business accounts should remain separate for tax related purposes. When there is no clear distinction between a card that is used for personal and business related purchases, filing taxes can become complicated. A business credit card makes the process easier on everyone involved. Although a company must build its credit, credit cards are easier to obtain than small business loans.

The Benefits of Credit Cards

More and more people and businesses use credit or check cards because of their convenience. Keeping large amounts of cash on hand is considered dangerous and checks are not universally accepted. Using credit cards makes purchasing most business supplies easier. Business credit takes time to build, but it is worth the effort.

According to a recent survey, credit card payments are regularly used by most small businesses. While rent, utilities, supplies and materials typically use other forms of payment, credit cards are usually used to cover traveling expenses, transportation, and office supplies. Given the current banking system and the rise of electronic payments, credit cards may be a better alternative to cash and checks.

Credit Rewards

The rewards and incentives that credit cards offer vary with each company. Research the different companies to find the best credit card options for your company and avoid underperforming cards. Before choosing a card, it is important to remember that any outstanding balance is not worth the rewards. Interest rates for the best credit cards can be over 20 percent and usually have a two percent return.

When examining rewards cards, consider whether or not the card has a yearly fee. Some of the better reward options come with the highest annual fees. Determine whether or not the card is truly a good value for the company. A large fee may not compensate for rewards that a card offers.

Make sure that the rewards of a card match the needs of the organization. Rewards that the company does not use are not worth the fees that come with the card. For example, a card that offers international flights is not useful for a local business that has no need to travel internationally. Search individual rewards in order to find a reward card that fits the needs of the organization.

Credit cards are fast becoming essential to small business owners, and taking advantage of different rewards that cards offer only makes sense. However, rewards cards are only effective if they support the needs of the business. If the interest rates or fees are too high, credit cards could actually cost the business more than the rewards are worth. This is particularly true if the balance is not paid off regularly. However, a well-chosen card can help small business owners manage their cash flow.

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