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There are both advantages and disadvantages to using a business credit card. Small business owners should carefully weigh their options before just applying for the first business credit card offer that they receive in the mail.

It’s quite common for new business owners to instantly be blasted with all kinds of snail mail marketing targeted towards new business owners the very week that they first form their LLC or corporation because many different marketing organizations obtain lists of newly formed businesses (since much of this information is publicly available on various state business regulation government websites). One popular type of product that is marketed towards many new business owners include business credit cards and business lines of credit.

Be sure to do your homework before applying for a business credit card or for that matter any type of financial product for your business. Here are some things that you should know as you research whether or not a business credit card is a good fit for your company’s goals.

Spending Protection

One major advantage to using a credit card to make purchases is the fraud protection. Like most other business owners I love shopping at Amazon.com, Staples.com, etc. to find the cheapest prices on office supplies and other items needed for my business BUT in some cases you may need to make an online purchase from an unfamiliar retailer. If you make your online (or offline) purchases at any retailer and there is fraudulent activity on your credit card then almost every credit card company will immediately take care of the problem with zero liability on your end. This is contrasted to making online payments with a debit card that may or may not have comprehensive fraud protection.

Potential for Abuse

All forms of business credit whether business loans, business credit cards, etc. carry the potential for mismanagement and abuse. There are both smart ways to use business credit and some very decidedly dumb ways to use business credit as well.

One smart strategy is to put as many purchases as possible on a business cash back credit card and then pay off the balance in full each month. As you can see from a cash back calculator those cash back savings can start to add up after any amount of time.

One very dumb strategy is to treat a business credit card as a license to make unnecessary and extravagant purchases without having money in the bank to pay off the card (i.e. over-the-top spending at an ultra fancy restaurant to impress a client, etc.) The key is to use the card for purchases that you would otherwise make anyway even without the credit card for payment. For example, using the card to make the premium payments for your business insurance is smart while using the card as a way to show off by picking up the check even when that purchase is not in your business budget is definitely not smart at all.

Convenience

Let’s face it. Business credit cards can be very convenient – especially if you require a way to give specified employees some leeway to make purchases with their own company card. Not only are business credit cards an easy way to make purchases pretty much everywhere, but most business credit cards offer online account management tools for business owners that want to track and manage the spending of employees (i.e. Employee A has a spending limit of $2,000 while Employee B has a spending limit of $5,000, etc.) So yes, Inc.com is right by saying that small business credit card use creates jobs and that is certainly a good thing but for many business owners convenience is the #1 reason for selecting a business credit card for their company.

What do YOU Think of Business Credit Cards?

Do you use a business credit card?  What are some of the pros and cons of using a business credit card?