Disadvantages of Having Business Credit

Although business credit is not a necessity, there are many advantages for new business owners. It provides a specified amount of cash availability. It can help determine the type of expenses incurred and how much it costs for each specific category of expenses. Also, business credit often provides bonuses that are advantageous to business owners.

While very alluring, there are disadvantages you should be aware of.

• Personal Liability. New business owners without an established business credit score may be held personally liable for the business debt. Business credit lenders routinely insist that business owners with a company history of less than two years sign a personal liability agreement. This means the owner becomes liable if the company is late making payments on the account. This could adversely affect the owner’s personal credit rating in accordance with the terms of the personal liability agreement.

• Interest Rates.  Interest rates are usually higher than personal credit cards. Misuse of the credit card by a business employee for personal purchases can be a serious concern and could land the business owner in serious problems.

The personal liability agreement for a new business is virtually unavoidable. To reduce your personal risk, use your business credit prudently. Make payments on time. Most importantly, do not take on debt greater than your business’s ability to repay.

Business credit is an important factor in establishing a business credit score. Research your chosen card’s pros and cons thoroughly, then use the card to help grow your business.