Credit Cards Blog

A year after launching her printing business, Sherry Stewart Deutschmann began leasing a new facility and needed large printing and sorting equipment. She had a business credit card with a $5,000 limit, but it would take hundreds of thousands of dollars to finance the kind of fast growth she saw for her business.

It was 2003, and she was generating about $2.5 million in annual revenues at the time, yet several banks and equipment suppliers all turned down her credit requests. "Nobody explained to me why," says Deutschmann, the 51-year-old founder and CEO of Nashville-based LetterLogic, which prints business statements and invoices. "They just flat out said no." She suspected it was because she was still a new business with little track record.

Finally, later that year, she was introduced to a venture capitalist who offered $350,000 in exchange for a 25% equity stake in the business. He also guaranteed a $500,000 line of credit. Today, LetterLogic generates about $21 million in annual revenues with 33 employees. Banks now contact her regularly to see if she needs loans or new credit lines, Deutschmann says. "The interesting thing is we don't need it anymore. We don't really have any debt."
As she learned, getting credit is much easier when you don't need it. But there are ways to build your business credit to avoid the same rejections Deutschmann faced early on. Here are five options to get started.

1. Mind your personal credit rating. 
 The biggest factor in many banks' decision to initially lend businesses money is the owners' personal credit ratings and they typically look for a personal credit score of at least the mid-600s, says Ami Kassar, co-founder and chief executive of MultiFunding LLC, a Broad Axe, Pa.-based company that helps businesses connect with lenders. To boost your credit score, be sure to pay personal bills on time, keep a low ratio of debt to available credit on personal credit cards and credit lines, and make sure any balances remain under 30% of your limit on credit cards. Moreover, lenders will also often check the personal credit of any investor or business partner with more than a 20% stake in the business, Kassar says.

2. Apply for credit before you need it.
To begin building a credit history for your business, apply for at least some sort of credit soon after starting up, Kassar says. A small business will often have to establish itself for two years before a bank feels comfortable offering a sizable credit line. But there are ways around that, such as getting a business credit card or applying for a small bank loan. If you have trouble scoring even a small loan, consider opening a store-based credit line or getting a small secured credit card with a low limit. Some major retailers that supply to small businesses, such as OfficeMax or Home Depot, offer commercial credit accounts that can help build a credit history for your business.

3. Grow your credit and use it.
Many businesses with enviable credit histories applied early for business credit cards and credit lines and used them as early as possible, says Wayne Sanford, owner of New Start Financial Corp., a credit consultancy in Allen, Texas. Once you've established a payment history, request an increased credit limit -- even if you don't need it right away. Also, check to see if you have a profile with Dun & Bradstreet, a business data and credit reporting agency, suggests Gwendolyn Wright, a San Francisco business consultant and former first vice president of the Bank of San Francisco, a community bank. If not, it may be worth paying a fee to set up a profile. You can then add credit references, such as suppliers you've worked with, to elevate your credit profile as a business.

4. Forge relationships with more than one lender.
Banks can change lending policies on a moment's notice and cut your credit limit overnight, so it can help to not have all your financial eggs in one basket, Sanford adds. You might instead choose to have a credit card through a major bank and your credit line through a locally-owned bank or credit union. "With the smaller banks, you can actually speak to the one person who will put your [loan] package together and go to the board" for approval, Sanford adds. On the other hand, a big bank can offer more products and more locations.

5. Consider alternatives.
Remember that traditional banks are not your only shot at credit, Wright says. There are a growing number of other options, such as securing investors, like Deutschmann did. Other resources include asset-based lenders, which focus more on collateral rather than credit worthiness, factoring -- which lets you borrow against your accounts receivables -- and peer-to-peer lending and crowdfunding sites, such as Prosper.com and Kickstarter.com. Using these alternate channels can at least indirectly improve your chances of getting credit in the future. "If people know your business and that you're good for the money, it can only help you," Wright says.

Ref: http://www.entrepreneur.com/article/220192#ixzz2gcc9g2LY

More than 80 percent of small-business owners use credit cards, according to the Federal Reserve. But some make the mistake of reaching for plastic too soon when starting up their businesses and reduce their chances for long-term success.

Nearly 60 percent of start-ups rely on credit cards for financing during their first year of business, according to a recent study from the Ewing Marion Kauffman Foundation, and for every $1,000 increase in credit card debt, a firm's chances of survival decrease by more than 2 percent.
What's so problematic about funding a start-up with a credit card?

It puts personal finances in jeopardy and increases stress.
People often assume that small-business credit cards insulate the owner's personal finances from the company's. But that's just not true. Whether you use a business or consumer card, you're going to be personally liable for debt. So, relying heavily on a credit card for financing could significantly increase the pressure you feel. If things don't go as planned, you not only will default on your business debt, but you also will face serious ramifications on a personal level.

You will have limited funding.
How much money you're able to glean from a credit card is largely a function of your credit standing and income. Many entrepreneurs are young and often at a disadvantage when it comes to those factors. And even if you've managed to garner high credit lines, they will likely be insufficient to cover the costs of getting a business up and running.

It's harder to weather tough times. 
Credit card debt is expensive: The average interest rate for a business card is about 15 percent. Given that you're unlikely to have much money in reserve, an economic downturn or lag in sales could prevent you from making even minimum monthly payments.
Given those problems, why do entrepreneurs repeatedly turn to plastic in their search for start-up funds?

Credit card funds are easier to come by.
Getting approval for a credit card account usually is easier than qualifying for a bank loan, especially in the current economic climate.

Entrepreneurs are often reluctant to ask friends and family.
They are too shy or proud to approach loved ones and acquaintances about investing in a budding business venture.

Entrepreneurs don't want to sacrifice equity to investors. This is perhaps the biggest reason that entrepreneurs are hesitant to bring on investors: They don't want to give up a slice of what could end up being a lucrative pie.

How can entrepreneurs avoid the perils of credit card funding?
The primary way is to seek investors early. By putting together a solid proposal -- complete with a detailed business plan and projections for both future revenue and potential return on investment -- you'll be putting your business in the best possible position to succeed.
If you fund your startup through equity rather than credit card debt, you won't have to waste crucial early-stage revenue paying down debt or the interest associated with it. More money will therefore go into making your business a success. And even if it doesn't pan out, there will be far less personal risk. You won't have to worry about catastrophic damage to your personal finances, which means you'll be able to bounce back more quickly.

Despite these caveats about using credit card debt to fund startups, it's important to remember that credit card use in and of itself is not a mistake. Not only will a credit card allow you to earn rewards on everyday expenses, but it also will help with cash flow because you'll have up to 55 days from the time you make a purchase until a payment is due. In addition, if you're a young entrepreneur, responsible use of a credit card will help you establish a positive credit history.
That will be very important when your business has matured enough to move to the next level and seek a bank loan.
When you're choosing your credit card, make sure you don't fixate on those branded for business use. There's no reason why you can't use a consumer card for business, especially considering the fact that you'll be personally liable with either kind of card and consumer cards actually have better legal protections. Consumer cards are protected under the CARD Act -- a law that eliminated many of the unscrupulous banking practices prevalent prior to the Great Recession -- but business cards are not.

Ref: http://www.entrepreneur.com/article/224350#ixzz2g4RNOLoo

It's true that careless use of credit cards can put you out of business faster than you can swipe your card through the reader.
When used effectively, however, a business credit card can simplify your financial record keeping--and maybe even earn you a little something "extra" for your diligence, too.

Here are 5 ways a business credit card can help:

1. Separation of personal and business finances
All business owners know how important it is to keep personal finances separate from business finances. A simple way to do this is to obtain a business credit card that's used only for business-related expenses and purchases. When the statement comes, you'll know without a doubt that every transaction listed is associated with your business and can avoid having to review the statement carefully to highlight or circle any expenses that don't belong with your business records.

2. Track employee spending
Most businesses have an employee who's responsible for paying small bills or making purchases on behalf of the business. It can be time-consuming to require that every transaction get your approval before making the payment, especially if vendors come looking for payments when you're in meetings or out of the office. An easier way to keep track of employee spending is to issue designated employees credit cards in their names, linked to your business account.
Most credit cards let you set monthly spending limits per card, so you'll have some peace of mind knowing your employees aren't charging excessively.
When your billing statement arrives, the transactions will be itemized and divided based on which employee made the purchase. If an employee abuses his or her credit card, you'll know before it gets out of hand.

3. Reduce time balancing your checkbook
When you get into the habit of using a business credit card to pay for all of your monthly expenses and purchases, you'll benefit from the reduced time required to balance your checkbook. Instead of having numerous transactions in your checkbook register each month, you'll be able to write a single check to the credit card company. This makes it faster to balance your checkbook and reduces the margin of error since there will be minimal transactions to keep track of.
If you get into the habit of paying the credit card in full each time the statement arrives, you can eliminate the need to pay interest on your purchases by using the grace period. Check with your particular credit card, but most offer at least 20 days' grace, meaning payments made in full within this time period are made without interest accruing.

4. Useful financial statements
In an effort to serve their business customers better, many credit card companies offer a range of reports. In addition to monthly statements, you can also receive quarterly and annual reports to categorize your spending. These additional financial reports can make tax time a breeze. Instead of searching through boxes and files for statements and records, you'll have just about everything you need on a single printout from your credit card company, categorized by the type of expense (gasoline, office supplies, travel, food and hotel, miscellaneous, etc.).
Some credit card companies also allow you to generate custom reports as needed. If you need a list of all payments made to a specific vendor over a certain time period--enter in the details and print out your report!

5. Extra benefits of business credit cards
In addition to making your financial record keeping easier, using a business credit card to handle the majority of your business expenses and purchases allows you to accumulate rewards faster.
Choose a card with rewards you will actually use--if you travel frequently, go with a card that offers airline miles, hotel stays, car rental discounts or free trips. If you don't travel much, choose from one of the many other types of rewards cards, and save on office supplies or gasoline, or get cash back.
Using a business credit card allows you to increase your productivity because it helps you save on time spent managing your financial record-keeping. For small businesses, switching to an all-credit-card system may even eliminate the need for a bookkeeper.

Read more: http://www.entrepreneur.com/article/196036#ixzz2g3xlFwjw

When starting a business you'll likely end up accepting credit or debit cards, which means hiring a third-party processing firm to manage the transaction between you and the card giants.
Visa and MasterCard manage the overwhelming majority of the credit and debit card network but don't work directly with business owners. They outsource sales and customer support to processors, says Amad Ebrahimi, founder of MerchantMaverick.com, a credit card processing comparison and review site.

Processors are also commonly known as merchant account providers or aggregators.
“The seller has more information than the buyer, so anytime you have a situation like that, it is like a used car sales lot,” Ebrahimi says. As a result, these aggregators are often criticized for confusing merchants with complicated payment schedules and fees.

To prepare for this complex marketplace, here are five questions to ask to make sure you're getting the best deal.

1. Is there a cancellation or early termination fee?
Ideally, you want a processor that won’t charge for this. But if you must pay a fee for leaving before your contract expires, it should no more than $200 to $400, says Phil Hinke, the founder of MerchantFeeSavers, dedicated to helping business owners understand the industry. Hinke also warns business owners to avoid processors that stipulate a “liquidated damages” termination fee, which means you'll be charged for the estimated amount of the full contract, if you cancel before it expires.

2. Is the payment processor compatible with your online shopping cart?
 Some processors have proprietary software that may not work with your online shopping cart, so check this before you sign up. The software that connects your online shopping cart and your processor is known as the 'payment gateway.' Ebrahimi says most processors work with a company called Authorize.Net, which has fairly universal software.

3. Is interchange-plus pricing an option?
If the answer is no, go elsewhere. With interchange-plus pricing, you can see exactly what MasterCard or Visa charges (the interchange fee), plus what you're paying the processor. If you're locked into a tiered-payment system, however, fees are not as easily identifiable: You could be charged one of three different fee levels for each transaction, depending on the type of card (i.e., airline credit cards cost more per swipe than standard ones) and how it's processed (i.e., if the customer is present, it'll save you in fees). Processors can more easily overcharge you in this pricing structure, without you recognizing it.

4. What fees will I be charged aside from the cost of each transaction?
Processors may tack on annual or monthly fees, regulatory fees, compliance fees, and statement fees. Be sure to ask about this upfront. Hinke says these fees generally shouldn't total more than $200 per year for brick-and mortar-merchants -- and no more than $300 annually for ecommerce retailers because of additional service fees associated with the online shopping cart.

5. What customer support is available?
You are going to need help when, for example, your terminal malfunctions. Look for a processor that offers phone support available 24 hours a day, 7 days a week, says Ebrahimi.

Finally, don’t be talked into leasing a terminal, which is the machine where customers swipe their cards to pay. Hinke says he has seen novice merchants lease a terminal for as much as $139 per month, when purchasing one would only cost between $200 and $350. If you decide to buy, Hinke says to chose a terminal that can be used with different processors – such as VeriFone or Hypercom brands -- should you need to change service providers.

Ref: http://www.entrepreneur.com/blog/223696#ixzz2g3o0x4ev

The oft-repeated survival statistics: Only about a third of startups survive to celebrate their 10th anniversary, according to U.S. Census Bureau and Labor Department data, and only a quarter last until their 15th. Making it as a small-business owner is tough.

There are many ways to increase your company’s survival odds, but one of the easiest is to control your use of credit-card debt. Too often, entrepreneurs don’t make the best use of their accounts and end up hurting their businesses. Here are seven of the most common credit-card slipups to avoid.

1. Ignoring your personal credit standing:
Credit-card issuers pull personal credit reports when making business-card approval decisions because to them, a small business is its owner. So, it’s crucial to try to maximize your personal credit score before applying for a business card. Start by visiting annualcreditreport.com and ordering a free copy of your major credit reports (Experian, Equifax and TransUnion). You can check for inaccuracies that could be dragging down your credit standing, as well as get a sense of whether there is any negative information that you will need to devalue to improve your score. The most efficient way to do so is to get a new personal credit card and either lock it away unused or pay your bill on time each month. This will relay positive information to your credit files on a monthly basis.

2. Leveraging credit too early:
The numbers speak for themselves when it comes to the dangers of relying on a credit card to power a company through its infancy: For every $1,000 in credit-card debt that a small business takes on, its chances of long-term survival fall by more than 2 percent, according to a study from the Ewing Marion Kauffman Foundation. If you rack up a huge balance from the get-go, you will likely waste money on interest payments and won’t be able to reinvest in your company as freely as you might otherwise.

3. Being wed to only a small-business card:
Most people assume business credit cards are the plastic of choice for small-business owners, but for purchases you won’t be able to pay off within a single billing period, you actually could be better off using a personal credit card. Credit-card issuers are banned from increasing interest rates on personal-card balances in the absence of 60 days’ payment delinquency, but this rule doesn’t apply to business cards. So, you could face unexpected higher interest charges if you carry a balance on a business card, potentially disrupting your cash flow and strategic plans. Using a personal card won’t affect your liability; you’ll be personally liable for your small-business spending no matter what type of card you use.

4. Overlooking rewards:
Small-business credit cards have long offered unparalleled rewards on business-related expenses, and now, credit-card companies also are offering enticing initial reward bonuses on both business and personal cards to people with excellent credit ratings. You can garner hundreds of dollars in free cash or points, which can be used to score a free flight to visit an important client or help pay for a marketing campaign.

5. Paying interest:
You can avoid credit-card interest payments by taking advantage of introductory zero-percent rates on both purchases and balance transfers. For example, the Citi Diamond Preferred Card offers zero percent on new purchases for 18 months, while the Slate Card from Chase offers zero percent on balance transfers for 15 months and doesn’t charge a balance transfer fee. If you currently have a $5,000 balance with a 15 percent interest rate and want to become debt free in 15 months, the Slate Card would save you $518 in interest fees and help you pay down the debt one month faster.

6. Not segmenting transactions:
The rewards and low interest rates available today obviously provide value, but you won’t be able to take advantage of both using a single credit card. That’s why you should follow the "island approach" and segment your transaction types on different credit cards. For example, you can use a business-rewards credit card for everyday expenses and a zero-interest personal card for funding. This will enable you to reap the benefits of a business card but enjoy the debt stability of a personal card.

7. Failing to safeguard against fraud:
The best way to ward off fraud is to exercise common sense. Avoid leaving important financial documents where employees can see them; it’s possible they could apply for financial accounts under your name or your company’s name. If you regularly deal with clients or vendors over the phone or online, always be careful when exchanging financial information. And keep an eye out for credit-card transactions for unusual amounts, which could be a sign of unauthorized account access.

Ref : http://www.entrepreneur.com/article/224518#ixzz2g3hNEJrU

What it is: Credit cards can provide easy money for young, growing companies. But they also come with serious dangers.

How it works: There are personal credit cards, and there are cards tailored toward small businesses. Each come with benefits and rewards. There are more government protections for personal credit card holders, while business cards can have higher limits and rewards such as discounted office supplies that are tailored toward business owners.
No matter what, you will wreck your personal finances if the bills aren't paid, so don't be tricked into thinking you need to use a business card with the business.

Upside: Besides providing needed cash flow to young businesses, credit cards can also improve credit scores for owners and businesses alike -- as long as payments are made on time. There are also special rewards and perks such as airline miles, discounted gas or even cash.
The funds are also easier to come by, which can help in a pinch.
Embracing business credit cards for daily expenses inside the business can also aid in record keeping by helping business owners to separate personal and business finances, track employee spending, reduce time balancing checkbooks, and produce business financial reports.

Downside: Credit card interest rates are much higher than traditional loans, which can make them a pricey form of debt that will drag the business down during tough times.
It is little wonder that the Ewing Marion Kauffman Foundation has found that for every $1,000 in credit-card debt that a small business takes on, its chances of long-term survival fall by more than 2 percent.

For a young company, it is crucial to tap personal funds, family, friends and other investors in order to avoid racking up too much credit card debt. Such high-interest debt will swallow up a young company's revenues.

Getting late on a payments and you can damage your credit score, hurting your ability to take out loans as the business grows. A late payment on a small business credit card also gets you reported to a business credit bureau.

Extra tips:

• Review sites such as CreditCards.com,CardRatings.com and Bankrate.com provide online tools to compare interest rates, rewards programs and annual fees.
  
• You could get burned on a small business credit card if you don't scrutinize the fine print and ask a lot of questions. Such cards are not covered by the 2009 Credit Card Accountability, Responsibility and Disclosure Act. The law protects consumers from such practices as arbitrary interest-rate increases.
  
• If you think you won't be able to pay off purchases in a single billing period, it might be better to charge them on the personal plastic, rather than a business card.
  
• Don't just hone in on annual fees. Check out baggage insurance, concierge service, employee-expense tracking, and even access to airline clubs.
  
• Search out the business cards with the best rewards in order to make something back on the business' purchases.
  
• Take advantage of introductory zero-percent rates on both purchases and balance transfers.
  
• Use different types of cards for different types of transactions. For example, a business-rewards credit card might be best for everyday expenses, while a zero-interest personal card might be the best for funding.


Ref: http://www.entrepreneur.com/article/228193#ixzz2g3XUAbfq