The usual plethora of credit card offers that flood the advertising schedules has been noticeable by its absence this year, as credit card companies worry about continued exposure to potential ‘bad debt’ from consumers. But business credit cards are a different category, and something that many small and medium size businesses rely on to get them through lean months. Many SMEs utilise business credit cards as part of their financial organisation, and the Federation for Small Businesses is calling for a cap on credit charges to help struggling businesses this year.
“A cap on interest rates will at a stroke not only reduce business costs but give consumers a real boost and cut the cost of borrowing,” says FSB national chairman John Wright. He believes that small and medium size businesses will play a pivotal role in driving the UK economy out of recession and onto the road to recovery, but the interest rate charged on many business cards could scupper some businesses chances of being part of that recovery. According to the latest FSB figures, 23% of entrepreneurs use a business credit card to finance their business, but a worrying 26% use personal credit cards instead. This could cause a business problems in the long term, as it becomes difficult to separate business from personal expenses and exposes the cardholder to personal liability of the debts of the business and a potentially poor personal credit rating.
So perhaps this is the ideal time to start looking at business credit card transfers in much the same way as personal credit card transfer options. A business credit card works in a similar way to a personal card, giving the card holder a period of interest free credit, flexible payments and a much easier accounting system, with purchases and expenditure being listed on one, detailed statement instead of a disorganised wad of receipts. Like personal cards, business credit card suppliers are also anxious to tempt new customers with balance transfer offers, providing customers with the same options to ‘card jump’ as personal credit card holders. For a business this may help cash flow in lean months, particularly in the traditionally slow business months of January and February.
An alternative to the business credit card is the business charge card, which offers the same amount of convenience and flexibility as a credit card. However, with a charge card the balance often has to be paid in full at the end of the month by direct debit, so a charge card can offer a short-term solution to cash flow issues at best. It also has to be remembered that business credit cards often have an annual fee attached (sometimes hundreds of pounds) so this amount has to be taken into consideration when comparing and contrasting the cards on offer.
January is the ideal time to look at transferring to a new business credit card to take advantage of attractive offers that may not be repeated later in the year. It is also the time when many businesses are sitting down to take stock of their financial position and prospects for the remainder of the year, and so is an opportunity to examine the business credit card deals on offer. The competition between business card providers is fierce, with many including ‘reward schemes’ and other tempting sweeteners to get businesses to swap allegiances. The benefits of business credit cards are obvious – they allow the business to have a separate ‘slush fund’ of financing that can be easily controlled and monitored, no matter how many card holders are using the account. Business credit cards also give SMEs in particular another valuable commodity – time. Time not only to balance money in and money out (ensuring suppliers are paid on time and maintaining other lines of credit), but time saved on accounting and administration.
“2009 must be a year of action for small businesses,” says John Wright of the FSB. “The Chancellor and the Government can and must take a very serious look at capping interest rates charged on credit cards,” he adds. If the credit companies take notice of this then credit card charges could stabilise, leaving businesses in a much stronger position to be able to ride out the recession. It could also lead to a greater flexibility in credit lending for SMEs and avoid the knee-jerk reactions of the banks and credit providers seen in previous downturns. All of this means that now is the ideal time to look at business credit cards transfers to take advantage of the best deals, while they’re still on offer.