Difference Between a Venture Capitalist and an Angel Investor
ByNikolina Cveticanin
December 20,2022
Every day, entrepreneurs across the world come up with ideas that might turn out to be multi-million dollar businesses. Regrettably, those lightbulb moments quickly fade if there’s no financing available to see them through. Ideas keep vanishing because there’s no capital to bring them to life.
Fortunately, there is a way to navigate this issue. Our discussion of venture capitalist vs. angel investor will allow you to regard the above scenario in a positive light. We’ll compare angel investing and venture capital, learn their differences, and weigh the pros and cons that should help you choose the right one for your business or startup.
What Is an Angel Investor?
An angel investor is typically an individual or group of individuals with high net worths (surpassing $1 million) who invest in small or growing businesses. Angel investors usually invest during the early stages of a business, either before operations commence or right after. With angel investing, small businesses get a chance to secure seed funding. In return, angel investors can get convertible debt or equity in the business, become part owners and/or shareholders.
The Securities Exchange Commission requires that angel investors be accredited. Accreditation is important to ensure that the investor or group of investors are financially sophisticated. They should also be able to fend for themselves, especially in the event of a loss. In our comparison of angel investors and venture capitalists, we will see that this is one of the most salient points, as it protects investors.
To earn such accreditation, investors must meet either of the following two criteria:
- Earned an annual income of $200,000 for two years before the accreditation and has a high chance of retaining such earnings in the future. Where taxes are filed with a spouse or spousal equivalent, the income is pegged at $300,000 annually (a monthly income of $16,667 and $25,000, respectively).
- A net worth of over $1 million.
What Is a Venture Capitalist?
To engage in a venture capitalist vs. angel investor conversation, first, we need to look at the definition of a venture capitalist. Namely, a venture capitalist is an individual or corporate entity that invests in small and growing businesses with funds pooled from investment companies, banks, pension funds, and other sources. This means the money invested doesn’t necessarily belong to the venture capitalist. Investors in this category will also not invest at the early stages of the business but when they see potential or actual growth.
Investments by venture capitalists are considered high risk, but the potential for growth shown by the small business can easily offset the risk of a bad investment.
Difference Between Venture Capital and Angel Investing
Venture capital and angel investing have similarities in that they focus on small and growing businesses. There is also their preference for technology and science sectors because they tend to show considerable growth and provide more investment security. Moreover, both kinds of investment can earn a reasonable stake in the business, and options for conversion of debt to equity can be made available.
Regardless of these similarities, there are also notable differences that set them apart. This is why a comparison of angel investors and venture capitalists is indispensable before a business decision can be reached. Below are some aspects where their differences shine through.
Amount of Funding Available
An angel investor will typically invest hundreds of thousands of dollars because they are investing their own money. Venture capitalists, on the other hand, will invest millions of dollars because they have more access to a range of funds.
Types of Investors
As already stated, angel investors are wealthy individuals or groups of individuals with high net worths. Meanwhile, venture capitalists take on high-risk investments with funding from third parties.
Time of Investment
Angel investing is usually done at a more vulnerable point of the business, which is a higher risk. Businesses that have angel investors are generally in their early stages, before or right after operations commence. Conversely, venture capitalists prefer to invest in more established businesses that have higher chances of providing tangible returns. To be fair, this is not out of place, considering that the funds belong to third parties.
Level of Involvement
Regardless of the type of investor, there’s a desire to become involved in the activities of the business they invested in. The aim for both venture capitalists and angel investors is to have a firsthand idea of how their investment is being managed and the steps being taken to ensure their returns. Angel investors tend to become part owners and get involved in the day-to-day operations of the business. But, in some cases, they are satisfied with only providing financial support. Venture capitalists, on the flip side, prefer to get involved in the decision-making by being on the board of directors.
Due Diligence
Due diligence is one of the most important segments of any investment process for angel investors or venture capitalists. Angel investors will usually conduct basic due diligence checks because they own the investment sum and won’t be held accountable by third parties.
Venture capitalists are more prone to lawsuits in the event of reckless investments because of the fiduciary responsibility to their clients and other third-party institutions. For this reason, they are liberal with the resources that go into due diligence, preferring to ascertain in the preliminary stages that the investment doesn’t pose any risk.
Industries of Interest
As a rule of thumb, an angel investor will invest in an industry they are familiar with. This is either because they have made money in that industry, or understand the workings. Venture capitalists are more interested in industries they consider profitable.
Angel Investor Pros and Cons
Angel Investor Pros
- Angel investors are more willing to take risks with their own money by investing in businesses that have just launched operations or are about to do so.
- In most cases, angels only require a return on their investment at a future date of the anticipated growth of the business. This is more convenient than debt financing with a set payback date.
- Mentorship opportunities may present themselves because angel investors are familiar with the industry they have invested in. As startups need all the guidance they can get, especially when navigating challenges, angel mentorship is valuable.
- With angel investing, there is flexibility to convert the investment sum into equity in the business. This saves the business owner from having to repay bank loans when the business is going through a rough patch.
Angel Investor Cons
- Since angels invest their own money, their funds may be insufficient. The consequence is that a business owner will need to bring several angel investors on board and potentially deal with a slower funding process.
- Some angel investors may become difficult to work with when they insist on having a say in your business without having some level of ownership.
Venture Capitalist Pros and Cons
Venture Capitalist Pros
- Venture capitalists can and will most likely leverage their connections and experience in the industry to market and promote your business. This is a win-win situation for both parties involved.
- Just like angel investors, they may grow your company by sharing their industry knowledge and referring professionals to work for.
- Venture capitalists can also convert their investment sum to equity in your business and eliminate the need to pay back funds at a set time.
- They can provide more substantial amounts of money your business needs to grow.
Venture Capitalist Cons
- As is the case with angel investing, venture capitalists tend to have a say in your business due to the significant investment they’ve made. Expectations may get too high and can only be remedied through a balanced decision-making process.
- The likelihood of a buyout by venture capitalists is high. This may only be beneficial when you need the funds for a new business venture.
The Role of Private Equity
After the above comparison of angel investor and venture capitalist, a quick definition of private equity is important to address grey areas and possible similarities.
Private Equity Definition
Private equity refers to funds that are mainly interested in acquiring private companies not yet listed on the stock exchange. Private equity funds usually have high-net-worth or accredited individuals and firms coming together to pool capital towards investment. Entry into these funds is exclusive due to the large sums required. For example, the minimum entry requirement for some funds is $250,000. Once the required capital is raised, the fund is closed.
Angel vs. Private Equity
The key similarity between angel investors and private equity is that they have the same goal of investing in a business to get returns. They may do so because they believe in the potential the business possesses, wish to gain control of it, or to save it from failing.
On the other hand, the major difference between the two types of investors is that the angel is an individual who invests on a smaller scale, while a private equity investor usually does so on a larger scale. The intention of a private equity investor is also geared toward acquiring the entity to be invested in.
Venture Capitalist vs. Private Equity
The objective that both venture capitalist and private equity have is the same - to get returns. Private equity investors, however, are more interested in larger enterprises and companies that are well established. As discussed in this article, venture capitalists are open to investing in startups and businesses that show growth potential.
Moreover, venture capitalists are known to narrow their investment scope to tech and science-inclined companies, but this is not the case with private equity investors who prefer diverse portfolios. The sizes of their investments also differ, with private equity investments being higher.
Final Thoughts
Regardless of your preferred capital raising strategy, if you’re a business or startup owner, you should explore the benefits provided by venture capitalists vs. angel investors. Even though both classes of investors can help you grow your business, you need to weigh the pros and cons to determine which one is optimal for your company. The amount of capital required is also an important factor to be considered because the investment scopes of these classes differ.
No matter the class of investor you need to approach, be sure to conduct due diligence and prepare an impactful business plan that will increase your chances of securing the investment you need.
FAQ
Should I pitch to angel investors or venture capitalists?
Pitching to either angel investors or venture capitalists depends on the stage of the business, the amount of capital required, and the industry in question. The specific needs of your business should be considered in order to make the final decision.
Do venture capitalists invest their own money?
Venture capitalists are usually employees of venture capitalist companies who pool funds from individuals, banks, or pension funds to invest in businesses. While, in most cases, venture capitalists invest third parties’ money, they may invest their own funds under a general partners’ agreement. A general partner in a venture capitalist company is part of the group of investment decision-makers.
How do angel investors and venture capitalists work?
An important part of opting for a venture capitalist vs. an angel investor is learning how they both work. Angel investors are individuals or groups with high net worths, investing their own money in businesses and startups.
Venture capitalists are employees of venture capitalist companies that invest money belonging to third parties, such as banks and pension funds, in businesses.
More From Our Blog
Unlevered free cash flow is a term used in corporate finance and investment analysis to discern a company's value. It is the amount of cash a company generates after deducting interest payments, income taxes, and other expenses.
This metric is important for business owners and investors alike, as it can be used to make informed decisions about a business or investment opportunity. So, let's explore unlevered free cash flow in more detail and discuss how you can use it to assess a company or individual investment portfolio.
We’ll also look at some of the key considerations when assessing this metric and potential pitfalls associated with using it to assess the enterprise value of a business.
So, What Is Unlevered Free Cash Flow (UFCF)?
This type of free cash flow measures a company's ability to generate cash flow from operations. It is calculated by subtracting a company's interest payments and income tax payments from its operating cash flow.
This metric is often represented on the company's financial statements, but analysts also calculate this enterprise value manually. Unlevered free cash flow is important for business owners and investors alike because a cash flow statement indicates a company's ability to generate cash flow after meeting its financial obligations.
How Is Unlevered Cash Flow Calculated?
The unlevered free cash flow formula is:
Unlevered cash flow = operating cash flow - interest payments - income tax payments
The formula for calculating unlevered cash flow considers earnings before interest, taxes, depreciation, and amortization, which is known as EBITDA, and investments in buildings, equipment, or machines, also known as CAPEX. The math will also include inventory, accounts receivable, and accounts payable to calculate the net operating profit.
Levered vs Unlevered Free Cash Flow
When calculating free cash flow to find out how much capital your business could use for growth or whether a business is worth investing in, it's important to differentiate between levered free cash flow and unlevered free cash flow.
Levered free cash flow measures a company's ability to generate cash flow after meeting its financial obligations. This includes debt obligations, operating expenses, and capital expenditures.
On the other hand, unlevered free cash flow measures a company's ability to generate cash flow from operations.
While both unlevered and levered free cash flow are important, the first is often used as a more accurate measure of a company's true cash-generating potential. This is because it excludes the impact of debt on a company's cash flow.
What Can Unlevered Free Cash Flow Tell Us About the Company?
Unlevered free cash flow can be used to make informed decisions about a business or investment opportunity by evaluating the company's ability to generate cash flow.
Whether or not a company presents unlevered vs levered free cash flow on its income statement can make all the difference for investors. A company that is highly leveraged by debt may be more inclined to report unlevered flows on its cash flow statement. This way, the company ignores its debt and provides a less realistic and more positive overview of its working capital to its potential investors.
It’s advisable for investors to check the amount of debt weighing the company down before investing. In particular, they should seek information on the overall free cash flow margin and not rely solely on the numbers presented as unlevered free cash flow.
The difference between levered and unlevered can also be an important indicator of a company's expenses, financial obligations, and the debt it might be in. Occasionally, the levered free cash flow could be negative - in this instance, the company owes more than it earns, which you wouldn’t be able to tell simply by looking at its unlevered free cash flow.
If the difference between unlevered and levered free cash flow is too small, this could also indicate that the company is barely getting by. When you calculate unlevered free cash flow and compare it to levered free cash flow, it’s an indicator that companies with a small difference between the two could easily go under if there’s a sudden drop in their revenue.
Potential Pitfalls of Using Free Cash Flow as an Analytical Tool
There are a few potential pitfalls associated with using unlevered free cash flow as an analytical tool. First, it is important to remember that the unlevered free cash flow formula does not take into account a company's capital structure, and some companies may take advantage of this fact when presenting their financials. This means that a company with a high level of debt may appear to have a higher net present value than it actually does.
Furthermore, companies themselves can manipulate the unlevered free cash flow metric for their financial statement. For instance, a company could choose to defer or prepay certain expenses, such as loan payments, to make itself look better. It could also fire employees or postpone capital-intensive projects to tweak its unlevered free cash flow.
Bottom Line
Despite its pitfalls, unlevered free cash flow can be an excellent measure of a company's ability to generate free cash flow after interest and taxes. It is important for business owners and investors alike, as it can be used to make informed decisions about a business or investment opportunity.
It can be used to assess the financial health of a company and the potential return on investment. However, there are some key considerations to keep in mind when assessing unlevered free cash flow, such as the projection period over which the cash flow is being generated and the company's capital structure.
Altogether, when unlevered free cash flow working capital is combined with other metrics like levered free cash flow, it can be a great indicator of whether a company could be a good investment or not.
Further Reading:
How To Find Angel Investors and Kick-Start Your Business
Everything You Need to Know About Investment Banking
Digital Asset Management Software
Best Bank for Small Business
Franchises Under 10k - Affordable Franchises To Invest In
By Vladana Donevski ·
June 10,2022
Every business owner hopes that their business is sustainable and can grow. While expansion from an LLC to a corporation isn’t the end goal of most owners, it’s a sign that the company is growing. For one thing, incorporation gives businesses access to more funding from external sources.
Incorporating an LLC is no small task, but not to worry; we’ve got all you’ll need to know covered in this guide.
LLC vs. Corporation
First, let’s make a distinction between limited liability companies and corporations.
Limited Liability Company
A limited liability company is one of the most common options for small business owners. That’s because it offers protection from liability, is flexible to manage, and also gives great tax advantages. Such a company exists as a legal business entity, separate from the affairs of its owner, hence the name - limited liability company.
This means that LLC owners cannot be held liable for any debts or liabilities related to the business. Personal properties are unaffected in the event of bankruptcy, which is a pretty substantial advantage, especially with how volatile going into business can be. LLCs are straightforward with their structuring, which can make business operations smoother.
Another simple-structured option is a DBA, also known as Doing Business As. It’s a side conversation, but be careful not to mix them up. As similar as they may be, DBA vs. LLC comparisons will show you just how different they can be.
Let’s talk about taxes for a moment. Operating an LLC means you get pass-through taxation, which means that tax is not levied at the entity level. Income or losses made by the LLC are passed through to the owner. The owners must then report these on their personal tax returns and make any necessary tax payments. If there is more than one person running the business, a tax return must be completed.
LLC tax benefits are just one reason to open this type of company. Other advantages of an LLC are raising credibility (an LLC is more likely to be considered trustworthy than a partnership or sole proprietorship) and having limited compliance requirements.
Putting LLCs one up in the sole proprietorship vs. LLC debates, limited liability companies do not have to endure the strict compliance requirements that sole proprietorships and other business types (general partnerships and even corporations) face.
On the flip side, however, the disadvantages of an LLC cannot be ignored, either. For one, this type of company generally costs more to establish and run. In some states, you will have to pay an initial formation fee, and many others charge annual report fees, franchise tax fees, or other levies.
Additionally, transferring ownership of a limited liability company is tough work. It is usually seamless only when all the members agree to add new members or alter how much each owner has. LLCs also have a hard time getting credit facilities from banks and other financial institutions, and when they do, they are usually secured with personal wealth as a guarantee.
Corporation
Creating an LLC might be simpler, but corporations also have their advantages. You can choose to form either of the two corporation types; a C corporation or an S corporation.
S corporations are pass-through entities, so establishing them isn’t that much different from forming an LLC. S corporation owners are taxed on the corporation’s profits and losses. On the other hand, C corporations are taxed at the corporate level, meaning the tax accrued is corporate income tax, separate from the business’s owners.
Advantages of Running a Corporation
C corporations are the most popular corporation types. This is because they have the distinct advantage of profits remaining within the business, eventually being paid out as dividends to the shareholders. Raising capital under a C corporation is also somewhat easier, as they can issue shares to public buyers.
Another advantage of corporations has to do with excess profits. There is more flexibility with the extra profit made by corporations, as opposed to the LLC business model. All the income earned in a limited liability company goes back to the owners but in S corporations, income (and losses) are passed on to shareholders, who will then report it in their individual tax returns.
This means that S corporations do not pay corporate tax, meaning they have fewer expenses and can save more money (for context, corporate taxes are usually higher than ordinary taxes). As a bonus, if the corporation can meet some regulations, dividends paid are also tax-free.
Disadvantages
Corporations are not without their disadvantages. C corps face double taxation, as they are also required by law to remit a portion of their income as federal corporate tax annually. That’s another deduction from shareholders' earnings.
While having a good structure is great, it also comes with many formalities. To run a corporation legally, you must have an appointed board of directors, and schedule and hold board and shareholders’ meetings, among other structural and managerial requirements. In a nutshell, incorporating means spending more on expenses.
Steps to Incorporating an LLC
Before we dive in, if being taxed as a corporation is what you seek for your limited liability company, then there is a way to go about that without needing to incorporate. Incorporating LLCs can be tricky, and there is no reason to do it if all you seek are tax benefits.
Just file an IRS Form 8832 or IRS Form 2553, and your business will receive tax status as a C corporation or S corporation, respectively.
If incorporation is truly your end goal, however, then there are two ways to achieve this conversion:
Statutory merger
Statutory conversion
Incorporating an LLC through a Statutory Merger
Statutory mergers are especially useful when an LLC operates in a state like Arizona, which prohibits the other method of incorporation; statutory conversion. To convert by statutory merger, your LLC would need to:
1. Form a New Corporation
Becoming an LLC with full incorporation status would require the creation of a new corporation. You would have to file a Certificate of Incorporation to the Secretary of State.
2. Merge the New Corporation and the LLC Together
Next, you should begin a merger process between this new corporation and the LLC. As the LLC is absorbed into the company, ownership percentages are converted into shares in the new corporation.
Incorporating an LLC through Statutory Conversion
Using statutory conversion to make your business an LLC with corporation status is the easiest incorporation method. However, as mentioned earlier, some state laws do not allow it. In the states where it is not prohibited (say, California), the process isn’t always the same but does follow a similar pattern. To incorporate an LLC using statutory conversion, the owners must:
1. Unanimously Agree To Incorporate
There has to be a mutually agreed-upon plan for the incorporation. All members should typically be on board with the decision to incorporate the LLC, or it will not be a smooth conversion.
2. File a Certificate of Conversion to the State
Next, you must file a certificate of conversion to the state and other documentation such as the articles of organization of the LLC.
3. Issue out Shares to the Public
Issuing shares is the next step. As mentioned earlier, all ownership percentages will be converted into shares. This enables the business to issue shares to investors and the general public. Once the conversion is completed, the limited liability company is dissolved and is now a corporation.
Incorporating an LLC is challenging, but it can be made easier by getting a company that can help you with your LLC. Besides setting up an LLC and helping save you resources, LLC services can help you avoid mistakes while preparing and submitting your paperwork.
What Happens if I Can’t Incorporate My LLC?
It is a very rare occurrence, but if you fall under the category of LLCs that can’t be incorporated either by statutory conversion or merger, you may have to use a different tactic. This alternative method is called a non-statutory conversion. Being the last resort, though, it is a very complex process. You should contact the services of an experienced tax lawyer.
What Will Happen After an LLC Is Incorporated?
Now that your LLC is incorporated, what changes? Here’s what you should expect with the incorporation:
A board of directors will be appointed.
A certificate of incorporation will be submitted to the state.
Business operations will adopt corporate bylaws.
Annual board meetings and annual shareholders’ meetings will be held to make resolutions to key decisions. Meeting minutes will also be taken.
Stock certificates will be issued to shareholders.
The business will start paying corporate tax.
Annual reports will be filed with the Secretary of State. Reports vary by state, but you can expect to include the company’s name and address, details of directors and officers, tax identification, business purpose, number of issued shares, and all authorized signatories or registered agents.
Again, enlisting the help of a capable LLC service makes all these new processes and changes easier to get through, so unless you know what you’re doing, it’s highly advised to get one.
By Julija A. ·
June 24,2022
You may have heard that locking down a good business credit card is one of the crucial ingredients for running a successful business. But is that really true, or is your personal card sufficient? And if it turns out you need one, how do you pinpoint the benefits and figure out which type of card to pick?
If you need answers to these questions, keep reading to learn more about the difference between a business and a personal credit card.
Key Differences & Similarities
Business and personal credit cards share a few common characteristics. Just like with personal cards, most business credit card applicants are personally responsible for the debt if their business fails. Also, in both cases, annual fees are tax-deductible as long as the cards are used to cover business expenses.
In fact, business credit cards designed for freelancers, side hustles, and part-time gigs function a lot like personal ones. In some instances, a personal credit card is a better fit, as there is no law preventing you from using personal credit cards for business purchases.
However, by going with a personal credit card, you are missing out on the opportunity to build your business credit scores. Most business credit cards report your activity to both consumer and commercial credit bureaus. However, some report exclusively to the latter and, as such, only affect business credit scores. Building your business' credit is as important as maintaining your personal one as it represents your company’s creditworthiness.
Another reason to separate business and personal spending is to make bookkeeping for your business as easy as possible, especially come tax season. If you use the personal credit card for both, you may find it difficult to discern which purchases were made for business and are thus tax-deductible.
The IRS doesn’t allow tax deductions on personal, living, or family expenses on your tax return. In short, by mixing the two, you could be missing out on tax deductions or risk getting audited by the IRS.
There is another key distinction between these two types of cards that’s especially relevant for companies with high operating costs. Most business credit cards have higher credit limits, which can serve as a lifeline to small businesses. We’ll delve deeper into some of these perks in the sections below.
Benefits of Using Personal Credit Card for Business Purchases
Personal credit cards can be used to cover business expenses, especially if you are a one-man show or in the process of building your business from the ground up. Here is why you might consider using a personal card instead of a business one.
Personal Credit Cards Typically Have Lower Fees
If you have a good credit score, you’ll likely get better rates with a personal credit card rather than a business one. Personal credit cards typically come with lower annual fees and, on average, lower interest rates. Considering how every penny counts when you’re just starting your business, using personal credit cards for business makes sense in some cases.
Personal credit cards also offer better protection thanks to the Credit Card Act of 2009. Under this law, credit card issuers are obligated to give advanced notices about limit penalties and APR increases. But some of these protections don’t extend to businesses, which means you run the risk of not being notified about significant changes in fees.
Some Personal Credit Card Rewards Might Be a Better Fit
Many personal credit cards come with useful rewards. Some of these might be a better fit for your business than those offered through business credit cards.
For example, one of the benefits of business credit cards may come in the form of excellent cashback for purchasing office supplies. However, if you buy two pens per month, you might benefit more from regular cashback rewards that cover multiple categories.
That said, there are a range of benefits to separating your business and personal purchases.
The Benefits of Having a Business Credit Card
Now that we’ve covered why you might decide to go with a personal credit card, let’s check why going with a business credit may be a better option.
Higher Spending Limits
Businesses typically spend more than your average consumer. That’s why business credit cards tend to offer higher spending limits. With a higher spending limit, you can cover more significant costs than when using a personal credit card for business, especially when trying to manage inventory costs.
When speaking of operating costs and transactions, you'll find that many business credit card issuers often add tools for tracking business expenses. These features will come in handy, especially when you are just starting your business and you’re not used to handling business expenses.
Free Employee Cards
Once your business does start growing, you can utilize other benefits of business credit cards, including free cards for employees.
Keeping Your Credit Utilization Ratio Low
The credit utilization ratio is used to describe the percentage of the card’s credit limit that the holder is using. The ratio has a significant effect on your credit score.
Those who use personal cards for business purchases drive up the credit utilization ratio and, by extension, lower their credit scores. On the other hand, those who separate their business and personal finances drive up their scores by using less of their available credit.
To maintain a good credit score, you need to keep your credit utilization ratio below 30%. In other words, to prevent business purchases from making a dent in your personal credit score, you should have separate business cards from personal cards.
Building Your Business Credit Score
Using personal credit cards for business doesn’t just harm your personal credit score, but you’re not doing your business any favors, either. By making business purchases with a business credit card, you are building your business’ credit score.
This credit score can make it easier to find the right office space and secure business loans. Furthermore, your customers, potential investors, and partners use this metric to determine whether your business is worth their time and money.
Additional Perks of Using a Business Credit Card
In addition to boosting your financial standing, a business credit card will often have excellent rewards designed to help you save some of the profits that would otherwise go toward business expenses. Let's check them out.
Save on Interest With Introductory APR
Business credit cards with 0% APR are a great way for businesses of all sizes to manage their finances and grow their operations. Since both types of cards can offer this introductory APR, if you don’t have large expenses, it won’t exactly settle the business credit card vs. personal credit card debate.
However, if you do make larger investments, these introductory promotions where the interest is waived for a set period of time, typically between six and 18 months, can make all the difference. This makes it easier for new businesses to handle startup costs and make purchases without worrying about paying interest or accruing debt on their accounts.
Save on Expenses Using Rewards Programs
Many business credit cards offer rewards programs that can save you money on business expenses. Some of the rewards you can rely on are travel points, cashback, or points you can exchange for other perks. There are also a few saving programs that serve as generous benefits of business credit cards.
The first step is figuring out what type of rewards you are looking for. Some programs offer cashback or points that can be redeemed for merchandise or travel. Others may offer discounts on business expenses such as office supplies or fuel. There are also some programs that offer a combination of rewards.
Ultimately, you can always rely on a cash-back rewards program if you don't consistently spend enough to make use of other types of rewards.
Finally, make sure to compare the different options to identify the program that offers the best value for your business. By taking the time to research your options with a business credit card or a personal one, you can reduce your expenses and pinpoint the most relevant benefits.
Things to Look Out for When Choosing a Business Credit Card
Aside from the potential benefits, there are a number of important aspects that require your attention when choosing the right credit card.
Annual and Interest Fees
Most business and personal credit cards come with annual fees. The fact that these fees can range anywhere from $50 to $500 is a critical part of the business vs. personal credit card showdown. Also, the annual fee is often offset by the rewards and perks that come with the card.
In addition, business credit cards usually have higher interest rates than personal credit cards. This is because businesses are considered to be a higher risk than individuals when it comes to credit.
However, you can avoid paying interest on your business credit card by paying your balance in full each month. This will help you save money and keep your business finances in order.
Consumer Protection
Consumer protections for personal and business cards may vary greatly but can be a crucial component in managing a company’s finances.
These protections help to ensure that businesses are able to access the funds they need when they need them without being subject to hidden fees or invasive account monitoring. They also help prevent unauthorized use of credit card accounts and provide limits on spending and borrowing. For small businesses, these protections can provide much-needed financial stability.
Summing it Up
So, should you get a business credit card or use a personal one to cover business-related expenses? While some freelancers and part-timers can get away with using a personal credit card for business expenses, a business credit card offers perks and protections to small businesses that simply aren’t available with a personal credit card. It can also help you build your business credit score and improve your personal one, which is important for accessing funding and other opportunities down the road.
By Vladana Donevski ·
May 31,2022
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