All small-business owners need a
little financial help to run and grow their enterprises at some point, whether
it is to hire more employees, buy new equipment or market a recently launched
product.
But how to meet these ongoing
capital requirements — with a business credit card, term loan or line of credit
— can be confusing.
Credit
cards: easier approval, perks and flexibility at a cost
A business credit card
provides a revolving line of credit, just like a consumer card. This means you
can use and repay the credit line as many times as you want, as long as you make
the minimum monthly payments and the balance doesn't exceed the account's
credit limit.
Some 65% of small business owners
use credit cards on a frequent basis, according to the U.S. Small Business
Administration. Collateral is not required, which means no assets are
pledged as security for repayment of any debt outstanding.
So what are the drawbacks?
Because the charge amounts to an unsecured loan, cards tend to carry much
higher interest rates than loans backed by collateral. Most business
credit cards come with variable rates, so the amount of interest you pay on the
card balance can change, depending on a market gauge like the prime lending rate used in the banking system.
Having a high balance on each
card can negatively affect your credit scores. Both your business and personal
credit score take your credit utilization ratio into account, so keep this in mind
before racking up too much debt.
Business
loans: lower interest costs, but tougher approval
Business loans generally come in
two forms: a term loan, which provides a lump sum of money at
closing, repaid monthly at a fixed interest rate, and a line of
credit. This is a variable-rate loan similar to how a credit card
works, as you have access to a specific amount of money — say, $20,000 — and
you can borrow and repay funds up to that limit as many times as you wish.
Term loans typically involve
larger sums and are better suited for financing big-ticket items, such as new
equipment, real estate, purchasing other assets or to refinance an existing
debt. Lines of credit often are better for supplying working capital, as they provide
flexible, convenient access to funds. The interest rate you receive on a
business loan is likely to be far better than what you pay on a business credit
card balance.
Keep in mind that term loans are
generally backed by collateral, which means you'll have to pledge an asset to
secure the debt. The lending requirements are also far more stringent for business loans than for a credit
card.
The
bottom line
Business credit cards come with
numerous advantages over term loans and lines of credit, such as rewards for
spending, 0% interest introductory rates, sign-up bonuses and the ability to
track spending. However, because of high interest costs and other fees, they
are generally better suited for smaller regular expenses, or for business
owners who ca not qualify for other types of financing.
Business term loans are generally
a better way to go if you're looking to refinance an existing debt. Business
lines of credit are typically more appropriate for short-term working capital
and may carry much lower rates than credit cards.
If you would like more
information about AltaOne’s business credit cards, please feel free to visit our website.
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Nearly one-third of all Americans belong to a credit union. Frankly, we were interested to find out why that figure is not significantly higher. After all, credit unions seem to offer significant advantages over many banks: lower interest rates on loans; higher yield on deposits; low or no service fees; active participation in the community. The list is lengthy.
Probably the only advantage national banks continue to have over credit unions is accessibility. The major bank brands simply have more branches. However, credit unions have made great strides with their online services such as BillPayer, mobile apps, e-statements and personal financial managers. With all these online options, the need for face-to-face banking has diminished. Financial institutions that offer a solid combination of online and person-to-person should be equipped to handle the vast majority of member needs.
Let us dig a little deeper.
Account fees
This may be the biggest knock on banks. They tack on whopping fees for items such as overdrafts and monthly maintenance. In fact, the average monthly account maintenance fee has leaped by 18 cents to $12.26. That adds up to about $150 a year. Bank overdraft fees average more than $30. Another fee that generates a ton of income for banks is out-of-network ATM charges, which average close to $3 per transaction.
Conversely, over 70% of the largest credit unions provide free checking. Some credit unions charge overdraft fees that cost $20 to $30 per incident. The average monthly credit union maintenance fee is between $2 and $5. However, credit unions typically do not charge the fee unless the account dips below $30 or less.
Clearly, consumers seeking to avoid high bank fees should consider moving their money to a credit union.
Interest Rates
With interest rates hovering around the puny to sub-puny level for quite some time now, it is difficult to find any institution that offers a high-yield rate that will help your money flourish. That said, credit unions clearly hold an advantage over national banks. You are far more likely to find higher yields on products such as CDs, money markets and savings accounts from credit unions. The low interest rates are good news for those shopping for cars, homes and credit cards. Loan products remain at amazingly low rates across the board. Once again, credit unions usually hold an edge over banks when it comes to loan rates.
Customer Service
According to the most recent American Customer Satisfaction Index (ACSI), the overall customer satisfaction level for banks is 78 - a one-point jump over the prior year. Banks score the highest on "courtesy and helpfulness of staff," with a 91; and they score the lowest on "competitiveness of interest rates," with a 73.
Credit unions score another victory over banks in this category. The most recent ACSI report rates credit union customer satisfaction at an 85 -- a 3.7% rise over the prior report. Like banks, credit unions score the highest on "courtesy and helpfulness of staff," with a 93; and the lowest on "number and location of branches," with a 71.
With all this evidence in favor of credit unions, one has to wonder how banks have been able to maintain such a market share advantage.
If you are reading this blog, you are most likely an AltaOne member. Here is your call to action: spread the word. Tell your friends, family members, co-workers and neighbors about the credit union advantage. You do not have to pester them. Nevertheless, when the topic arises about a car loan, or mortgage or credit card ... or anything that pertains to the banking world ... put in a good word or two for credit unions and AltaOne. We appreciate the plug.
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