A small business credit card is a line of
credit that is acquired by an individual or individuals who own a small
business. A small business is generally a privately owned business, which is
operated with a relatively small number of employees. In most instances, small businesses
maintain low sales volumes.
Small business credit cards work very
similarly to personal credit cards. A lender will grant a business owner a
specified line of credit. The business owner will be permitted to spend this
line of credit; however, he/she will be required to pay back the original cost
of the loan in addition to the stated interest rate.
Repayment will usually be achieved by making
monthly payments. Every month, the business owner will pay a certain amount of
money to the lender. As long as he/she maintains an available amount of credit,
he/she will be permitted to spend this money. For example, if an individual
obtains a small business credit card with a credit line of $10,000, spends this
$10,000 and subsequently pays $9,000 to the lender, he/she will continue to
have $9,000 to use.
The primary difference between a small
business credit card and a personal credit card is the collateral that is used.
When an individual obtains a small business credit card, the business and the
associated assets will be used as collateral as opposed to an individual’s
personal belongings. In the event that the business has not yet acquired
assets, a business owner may be required to use his/her personal assets, such
as his/her home, as collateral.
Small business credit cards can be used to
obtain any items necessary to effectively operate a business, and therefore,
they are often an essential resource used to establish small businesses.