Most construction companies use credit cards in an effort to get 30-40 days to “float” their payments.
With credit cards, contractors:
Buy materials
Save the receipts
Submit the receipts along with an invoice to their clients; then
Pay the card off when they receives a commission
Here’s how it works:
Business credit cards are among the most frequent financing options for contractors to pay for everyday expenses. For good reason too. They’re easy to acquire, flexible, and practical.
A contractor credit card is a type of revolving line of credit, usually with lower limits than other financing options. While this can serve as a very important tool when used responsibly, contractor credit cards come with a set of risks to weigh alongside their benefits.
Pros of best credit card for construction business
Aside from the obvious of having the flexibility to make purchases today and rebel paying until a later date, contractor bank cards supply the following key benefits.
1. Easy Application Process
Unlike bank loans, construction bank cards are easy to apply and get approved for. While credit-based card providers take your credit score into mind when identifying factors like your credit limit, the application process is very simple. This makes them an ideal option for new or budding contractors who need to build their company’s credit score or who don’t yet be eligible for a credit line or bank loan.
2. Spending Flexibility
Contractor credit cards frequently have limited restrictions from the financial institution. With standard contractor loans, for example, you may be necessary to use funds for a selected purpose, including the purchase of equipment. Similar to a contractor credit line, banks likely won’t restrict where you choose the credit card, as long as you are making timely payments and maintaining an acceptable credit utilization. Then again, unlike a line of credit, the increased overall flexibility of contractor credit cards usually comes with a lower spending limit.
3. Rewards Programs and Initial Bonuses
Most credit card providers offer rewards and benefit programs to incentivize spending and differentiate themselves from competitors. These rewards will come in the form of cash back, rewards points, travel miles or insurance discounts. As another perk, some providers also give initial bonuses to businesses when they first find the card. And let’s be honest, getting rewards is fun. “Free” flight? Yes, please!
However, don’t be fooled by this. As you’ll see in the “Cons” section below, these “perks” might not exactly be as great as they seem.
4. Method for Building Credit
A construction company’s credit history plays an important role when applying for loans and establishing dedicated credit lines with lenders. A small business credit card can be useful in establishing good credit history to pave the way for future financing options to help grow your business. However, it’s important to note that credit cards are only good for building credit when used responsibly. Carrying a balance greater than 30% of the limit will eventually have a negative effect on your credit and will wrap up being counterproductive to creating a strong credit history.
Ways to use your credit card to generate good credit history include:
Set up automated payments to ensure you’re always on-time.
Use your business credit card to cover small expenses that you can easily pay back in a short period of time.
Take benefit of expense management tools designed specifically to help contractors stick to top of these credit & finances.
