Nearly half of all small business start-ups survive past the five-year mark, according to the Forbes Finance Council. A good entrepreneur knows that setting up and successfully managing a business is not only challenging but also risky and costly. So before you can invest in a trade that is likely to fail, you must evaluate all ideas relating to starting a small scale business. Start-ups face all odds in the market, but improper use of credit cards is a common mistake entrepreneurs commit. And as a result, business ventures collapse within the first years. Accounting is not easy, but there are ways you can avoid financial mistakes to ensure your business survives.
Not Paying Attention to Personal Credit Score
Lenders first assess the credit score of entrepreneurs before approving a loan application. Your credit score determines if you can repay loans even when unexpected events occur. If your credit score is below the limit, chances of receiving funds are minimal. It is crucial to evaluate your credit card report and correct any derogatory points affecting your score. You may want to re-think before canceling your credit card. Credit card cancellation affects your credit score, which eventually leads to problems when applying for a business loan.
Carrying a Balance on Business Credit
While it is true you can build a credit score by carrying a balance month to month; it is a risky move for a business. Depending on the terms and conditions of the credit card provider, credit card bills past their due date start earning interest. Some companies charge up to a 20% annual percentage rate, meaning you will pay a higher interest if you let bills accumulate for months. This can hurt any business because you will be digging deep to finance debts you could have prevented by paying outstanding balances on time.
Ignoring Interest Rates
Naturally, you will be excited about running a new business, but that is not a good reason not to pay attention to interest rates. Before applying for a loan, compare interest rates charged by different companies. Choosing a company that offers low-interest rates on business credit is wise. However, make sure there are no hidden costs that will force you to spend more on interest for loan repayments. Businesses often fall because owners don’t factor in hidden costs associated with low-interest loans.
Another aspect worth noting is credit card reward points. Make use of reward points on your credit card to sponsor your branding or marketing campaign, purchase stock, or catch a flight to a business meeting. Using reward points can save you a lot of money. Also, make sure your credit card information is safe to prevent fraud, which can lead to massive losses.