Business finance or borrowing, involves a business borrowing funds for its financial operations and is one of the most common sources of funding for a small business. Business finance credit or loan products usually consist of business credit cards, business overdraft and business loans.
Credit Cards
A credit card involves accessing a line of credit using a plastic card containing information pertaining to the account holder who is also the card holder. Credit cards are issued by a financial institution and allow the account holders to purchase goods or services from a merchant on credit. The credit limit is generally set according to the account holders income and credit rating. An annual fee generally applies and interest is charged on any outstanding balance.
There has been much hype and criticism in the media about 'credit traps' associated with uncontrolled spending and the credit cards offered by banks or other financial institutions. It is said some credit card users accumulate uncontrollable debt on numerous credit cards and many end up seeking consolidated loans to regain control of their debts. Whilst credit trap problems do exist when users lack restraint or fail to track their spending, a properly managed credit card can provide many advantages to users wary of the terms of their credit card contract and their spending limitations.
Features and Benefits of a credit card:
- Credit Cards allow the user to transfer balances to and from financial institutions and banks
- Some types of credit card accounts allow choice between low interest rates or no annual fee
- Credit card accounts allow a choice of credit limit (limit is generally based on income earned and credit history)
- Credit cards allow the user to make purchases and pay bills online
- Many of these products provide a reward system such award points, travel rewards, rewards and rebates
- Providers allow people to apply on line with an instant decision
- Some credit card companies offer debt consolidation and debt relief
- Student credit cards usually carry a concession such as 'No Annual Fee'
- Credit cards are very convenient and easy to use (users don't need to carry large amounts of cash to make a purchase)
- Interest free period on purchases and most bill payments
- It is easy to book venues, purchase airline tickets, make donations and book accommodation over the phone or internet.
- Credit card users need to exercise care with card security and spending habits
- What is the interest rate on this credit card account?
- Does this credit card offer interest free days?
- Is there an annual fee payable?
- If I cancel the card will the annual fee be refunded?
- How do I read my statement?
- How often are payments required and what happens if I miss a payment?
- What is the difference between paying the closing balance and paying the minimum monthly payment?
- Are cash advances treated as purchases?
- Is there an additional fee for an additional card?
- Is there a reward program associated with this credit card?
A Charge Card is a type of Credit Card. Charge Cards generally require full payment of the bill each month and do not allow carrying a balance forward. When a payment is made in full, a charge card does not charge interest. American Express and Diner's Club are examples of Charge Cards. High interest charges or the cancellation of the card may apply if the account holder falls behind in payments. If the account holder has the ability to pay the full closing balance of the card at the end of each month then the charge card is an alternative choice for those that want to have the convenience of using a card. Charge cards also offer rewards schemes.
Store Cards
Store Cards are generally offered to consumers by department stores. Placing a purchase on these cards may entitle the user to such things as extended guarantees, special offers or the opportunity to preview the sales. In most cases store cards charge a significantly higher rate than regular credit cards.
Affinity Cards
Affinity cards are company branded cards that provide a way for companies to build customer loyalty as well as strengthen awareness of their brand and products. Affinity cards usually display the company's name and logo. The company often supports a cause and donate money each time a purchase is made. Affinity cards offer programs, which are generally sponsored by non profit organizations, professional societies, and lifestyle organizations. Affinity programs enable card holders to support organizations, usually through a percentage of each purchase that goes to the affinity partner.
Prepaid Credit Cards
Prepaid credit cards are also known as Secured credit card or Prepaid debit cards. Prepaid credit cards differ from the conventional credit card because they use funds in the account holders account rather than the banks funds.
Features:
- No credit history is required
- No annual fee or transaction fee applies for purchases however a monthly fee may apply
- No minimum balance is required
- Prepaid credit cards have world wide acceptance
Benefits:
- Prepaid credit cards keep control of what the consumer spends
- Secure shopping therefore you can shop with confidence over the phone, internet or shopping outlet
- SMS balance alert
- Automatic salary deposit
- Enjoy advantages offered by Visa e.g. entertainment offers
Visa Gift Card
The Visa Gift card is a prepaid card that can be used (at participation outlets) where transactions are processed electronically. They can be purchased from selected Post offices, Caltex stores and 7 Eleven's. The spending limit is based on the amount of money the buyer places on the card at the time of purchase. It is very similar to a branded gift card e.g. Kmart or internet gift voucher. The advantage of using a Visa gift card over a branded gift voucher is that you are not restricted or limited to spending the entire amount at one particular store.
Advantages:
- Free to check balance online
- No application forms
- No credit checks
- Convenient to use as Visa without having to apply for credit card
- Hassle free card
- Can be used as emergency back up Visa when traveling
- Can be given to children traveling overseas without having to apply for secondary card
- If stolen, card has a spending limit and expiry visa card number
- Can be used as a one off transaction e.g. if particular business only accepts credit then Visa gift card allows the one off transaction
Disadvantages:
- Redeemable at participating outlets only e.g. Coles and Woolworths do not accept Visa gift cards
- Retail vendor offers restricted purchasing balance of $50-$100 with a $5.95 purchase fee
- Online vendor offers restricted purchasing balance of $25-$500 with a $6.50 purchase fee
- $1.20 self service fee applies when checking the balance over the phone
- $4.00 operator assisted fee applies when checking the balance over the phone
- The card expires within 12 months
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