Small-to-medium businesses (SMBs) owners sometimes require instant access to cash. However, a bank loan is not always the best option as it comes with stricter requirements and can take up to 30 days for the cash approval to come through. 

As traditional banks and lenders continue to impose stricter borrowing requirements, many business owners are turning towards business credit cards to fund their operations. 

Business Credit Cards: An overview

As a business owner, you may probably find yourself in certain situations where you need instant cash to grab an opportunity to bag a new project. However, not having enough cash in hand may act as a roadblock to capitalize on a promising prospect. 

This is where a business credit card can help you increase your company's purchasing power. This can give you access to a revolving line of credit with a pre-determined credit limit to withdraw cash and spend money on business expenses as and when required. 

Things to Consider 

Getting a business credit card in your pocket may sound like a promising idea. However, there are certain factors that you need to consider before you start shopping for business credit cards. 

Interest Rates and Penalties

Just like a consumer/personal credit card, your business credit cards also come with a charge in the form of an interest rate that you have to pay every month. This is on top of the money you pay back to the lender or bank that owns the card. 

If you do not pay the balance in full each month, you will be paying a higher interest rate and even a late fee charge. This will cause more financial strain, which will counteract your efforts to increase your revenue and business growth. 

Therefore, it is really important that you go through the terms and conditions of your business credit card before signing that paperwork. If you are not sure whether you will be able to keep up with the monthly repayments, it is best to rethink your strategy and think about alternatives. 

Additional Costs

Your business credit cards can give you convenient access to instant cash to finance your short-term business expenses so you can spend it on any business purchases. That is one reason why lenders often market these cards as an attractive and efficient alternative to bank loans and lines of credit.

But you have to remember that just like any other financing option, a business credit card will also come with additional costs and associated terms and conditions that you will have to manage. Failing to do so will turn this convenience into a disadvantage. 

Disadvantages of Business Credit Cards

Before you rush to fill out a business credit card application, you must familiarize yourself and reconsider with the following potential downsides of using this financing option. 

Personal Legal Liabilities

The convenience of using business credit cards comes with a condition known as a personal-liability agreement. This means when you get a business credit card, you will have to provide personal security to the lender to reassure that you will repay the debt. 

In this case, if you are late on payments or miss out on them, this will have a negative impact on your personal credit score. The lender will report it to the credit agencies, and you will have trouble securing loans or any other type of financial product in the future. This is also on top of the afore-mentioned higher interest rates and late fee penalties. 

Security is an Issue

As a business owner, it will be solely your responsibility to ensure the security and safety of your business credit cards. This is important because you do not want the card stolen or lost. Therefore, you must implement security protocols to ensure that your credit card is safe from all employees, contractors, vendors, and other outsiders coming to your office. 

You must also refrain from using your business credit card for personal spending. If you have authorized other employees to use your card, make sure they understand the security rules. You must be cautious when using your business credit cards when making online purchases to protect yourself from hacking attempts. 

Protection Issues

Many a time, a small business credit card does not carry the same level of protection as your personal credit card. For instance, some business credit cards may not provide the same protection of assured services when you dispute an error in the billing. In other cases, you may not get protection when returning merchandise or item. 

Therefore, you must always ensure and review if and what protection level on services the card offers. 

Fluctuation in Interest Rates

Unlike a traditional loan or line of credit where you get a fixed interest rate, a business credit card comes with a flexible interest rate. This means the card lending company can revise its interest rate and increase it at any time. This can end up costing you more than you would have expected. 

How to Overcome the Disadvantages of Traditional business Credit Cards

You can consider using your business credit card to help you meet short-term needs. Here are some tips to help overcome the above-mentioned disadvantages. 

  • If you have authorized your employees to use business credit cards, you must set limits on each card. 
  • You must only use the cards to build business credit and improve your credit score. 
  • Always deduct your business credit card's fee and interest from the company's taxes.
  • Always use your credit card statements to determine your deductions on expenses, including travels.
  • Look for alternative ways that are more suitable than using a credit card

VERGO as a Viable Alternative to Business Credit Cards

If you are a business owner looking to build working capital and have access to extra cash, VERGO can be an ideal solution. This debit card gives you unlimited cashback and rewards every time you spend money. 

More promisingly, there are no wire, check, or ACH fees, no minimum balance required, and no membership fee. You can now earn cash on all your business expenses and anything else. This will give you access to extra cash as and when you need it.