NEW YORK (MainStreet) — Whether it’s to buy a big-ticket item or make payroll, access to credit with good terms is essential for the day-to-day operation and health of a small business.
Some 42% of companies with 11 to 50 employees name cash flow as a top challenge, according to a recent survey by Wasp Barcode Technologies, a Texas-based company that makes inventory-tracking systems for small businesses.
Borrowing money on favorable terms can grow an enterprise, but stiff repayments can hurt the business and reduce the firm's cash flow. Before applying for a business credit card or loan, understand the terms and conditions and APR rates.
Business Credit Cards
A business credit card is one option to cover costs and allows you to establish a business credit history, which will help you further down the line be approved for larger loans at traditional banks.
Roughly 70% of small businesses operate as sole proprietorships, according to the Small Business Administration, a government agency that tracks data on small firms in the U.S.
It’s much easier to be approved for a business credit card than a six-figure business loan for a young business — especially if the business is less than two years old.
When it comes to business credit cards, the term business is used loosely — even sellers on popular online marketplaces, such as Etsy or eBay, can apply. If you're a sole proprietor, you can put down your Social Security number as verification and use your personal credit history to apply.
The advantage of business credit cards is they usually have higher credit limits than personal ones. The other pro is there are typically special introductory offers with rates as low as 0% interest for the first 12 months. It's essentially an interest-free loan for short-term cash if you pay on time. Some of these cards include sign-up cash bonuses.
The downside is some business credit cards carry a hefty penalty for late payments with punitive annual percentage rates (APR). These punitive, variable APRs can run as high as 29.9%.