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When youâre picking out the best small business credit cards, there are some obvious factors: their APR, credit limit, and fees. But itâs also important to think about your specific business and what its unique needs might beâand match those up with the right business credit card.
Do you travel for work? Look at cards with airfare and hotel perks. Do you need to fund startup costs? Focus on credit limit and low promotional APR. Do you deal with longer or irregular payments? Most cards have 30-day billing cycles, but not all. Do you carry out business internationally? Pay attention to the foreign transaction fee and other hidden charges for purchases outside the country.
Whether youâve just started a small business or youâve been at the helm for some time, a business credit card can come in handy. It gives you easy access to a revolving line of credit, which you can use for purchases or cash withdrawalsâwhen you need them, without hassle or delay.
Like with consumer credit cards, small business credit cards need to be used wisely. Otherwise, you might get caught up with unnecessary debt or tarnish your credit score.
(Weâll go more in-depth with business charge cards, too, but keep in mind that these 6 strategies apply to both.)
Having a business credit card will separate your personal and business expensesâmaking life way easier at tax time. If you use the card for routine purchases, you can easily track, categorize, and analyze your expenses through your monthly statements.
Does your cash flow ever lag from a decrease in sales or a delay in payments? A small business credit card would let you pay expenses and make purchasesâstretching your dollars without dipping into your cash flow.
Need help keeping track of your cash flow? Download our free cash flow statement template.
If your business tends to have high monthly expenses, or you have a startup trying to gain steam, then business credit cards with high credit limits will increase your purchasing powerâ¦ And your potential for growth.
Thereâs an easy way to build your business credit responsibly: small business credit cards. Just pay your bills on time, keep your balance manageable, and stay within your credit limitâand before you know it, that business credit score will rise. Think of it as an investment towards the best business credit cards and business loans.
Donât forget about those rewards, bonuses, and perks that come with business credit cards! Most small business credit cards offer higher cash back rewards than consumer cards do, alongside bonuses on typical business buys like office supplies, gas, travel, and restaurant bills.
Your business credit card will have some perks you can take advantage of to save moneyâno matter what your business is. Itâs smart to use it on regular expenses so your reward points add up faster.
Most of your transactions probably take place online, and business credit cards are just the easiest way to make that happen. Not everyone deals with PayPal and ACHâbut credit cards are accepted by everyone. Rack up rewards, separate your business and personal expenses, and build business credit by moving your online purchases onto your small business credit card.
Understanding your business credit cardâs billing cycle, and the specific day that cycle closes, will let you make use of the maximum number of days you can pay the bill without being charged interest. Thatâs called your grace period, and itâs key to owning a credit cardâespecially if youâre using it as a loan, or for large purchases.
Though you can easily find business credit cards without an annual fee, your business might actually benefit enough from those great rewards that the fee is a worthwhile expense.
Before deciding, be sure you know which small business credit cards your supplies accept! Though Visa, American Express, and MasterCard are common, your vendors might not accept them all.
Double-check that your business credit card issuer reports your payment data to a business credit reporting agencyâlike Dun & Bradstreet, Equifax, or Experian. This will help you build your business credit record.
By the same token, make sure the credit card company wonât report that information to consumer credit agencies, which would cause your business credit card to appear on your personal credit report. To protect your personal credit and to establish your business credit on its own, youâll want to keep those records separate.
Some credit card companies only report business activities on your personal credit report if the business is delinquent or the account is in defaultâso be aware.
If youâre shopping around for credit options, donât overlook business charge cards. Depending on your financial strategies and the structure of your small business, a business charge card might be more up your alley than a business credit card.
Like business credit cards, business charge cards extend lines of credit to users. They also have similar rewards, perks, annual fees, and foreign transaction fees.
Unlike business credit cards, which usually have preset spending limits based on your personal and business finances, business charge cards donât come with preset spending limits. With a business charge card, youâll have the flexibility to make large purchases without reaching your limit or restricting yourself a little down the line.
While it's possible that your charge card issuer might add a spending limit if your payment history and purchase habits seem concerning, this almost never happens. If you're a responsible borrower, you've got nothing to worry about.
Also, your rewards directly correlate with your spendingâand since you have no preset spending limit with a charge card, thereâs nothing stopping you from essentially using that rewards system as a secondary revenue stream of sorts.
While business credit cards let you roll your balance over from month to month, building interest along the way, business charge cards need to be paid in full every month. If you miss a payment, youâll get charged a hefty late feeâtypically 3% of the balanceâand risk getting your line of credit suspended.
On the flipside, because youâre (ideally) paying in full each month, you wonât need to deal with interest on your expenses, surprise fees, or outstanding debt.
The type of card you choose should be based on how you intend to use it, what youâre comfortable with, and how your small business works.
If you donât mind having a spending limit and youâre not sure youâll be able to pay your balance in full each month, then a business credit card is a good choice. Thereâs the safety net of rolling over your monthly paymentsâthough itâs accompanied by growing interestâand a diversity of choice in the cards and companies available.
But if you prefer the flexibility of no preset spending limit â letting you make large purchases without having to worry about your cap, and youâre confident youâll pay the balance in full each month, then a business charge card might be for you. A charge card will also promote good spending habits, help you improve your business credit score, and often comes with substantial rewards.
Itâs best to use small business credit cards and charge cards for your monthly expenses and working capital needs, since they basically function as revolving lines of credit with high interest costs.
However, there are definitely some advantages to seeing a business credit card or charge card as a kind of small business loan instead. You can look to your card when you...
Applying for a small business loan can take a whileâso a business credit card or business charge card is a good option if youâre in need of a quick turnaround. Itâs also an alternative to look into if you canât turn to a bank or the SBA.
Business credit cards give you the freedom to borrow as much or as little as you need each monthâwithin the credit limitâand use those funds however you like. Business charge cards donât have a preset spending limit, making them even more flexible.
You donât need collateral to apply for or use small business credit cards or business charge cards. So, if you donât want to risk your assetsâor donât have any to begin with!âyou can still borrow from your credit card or charge card.
However, you may need to sign a personal guarantee, but more on that later.
Just imagine what you can do with that introductory 0% APR for your business. Plus, if you have existing balances on other business credit cards, you can transfer them over.
But remember â itâs an introductory rate, so make sure you can pay the balance before that rate spikes. Also, you might need a certain credit score to qualify for the promotional rate in the first place, so research your business credit card options closely.
The application process for business credit cards or business charge cards is similar to that of consumer credit cards. Check your credit report firstâas thatâs an important factorâand look for any errors in order to improve your score.
Also, check out these steps to improve your credit score.
When applying for a small business credit card or charge card, make sure you have the following information on hand:
You might also want to look into applying for additional cards for your employees. Each employee may need to fill out a separate application, but theyâre not required to act as personal guarantors. Some cards allow you to set different credit limits for employee cards, too.
Nearly all business credit cards or charge cards require a personal guarantee from the business owner. As a small business owner, youâll inevitably get tied to your business by banksâand because small business credit cards and charge cards donât require collateral, your personal guarantee gives card issuers a measure of security in case your business fails.
There are a few ways to avoid making a personal guarantee, though youâll need to have an established corporation or LLC with good credit history.
Your business credit score is similar to your personal credit score, except it measures your companyâs creditworthiness instead. Banks and lendersâand especially the Small Business Administrationâwill look at your business credit score when considering you for a loan or line of credit.
As we discussed, small business credit cards and business credit cards are a great way to develop your business credit history. Here are a few common questionsâand answersâabout business credit.
The three major credit bureaus (Experian, Equifax and Dun & Bradstreet) use different methods to determine creditworthinessâlike timeliness of payments, years in business, lines of credit, collection amounts, and percentage of available credit usedâbut each of them analyzes data only from your business, not personal accounts.
Unlike your personal credit reports, your business credit reports arenât free. Hereâs what they cost:
Phew â youâve absorbed a lot about business credit cards and charge cards. By now you mightâve realized that they come in handy for small business owners. But with the plastic in your pocket, itâs especially important to be a responsible borrower and business owner. Follow these rules and you should avoid the most common pitfalls.
This motto remains the core of small business financial management. A small business credit card or charge card helps keep you and your business separate, so donât blur the line by making personal purchases with your business card or transferring a personal credit card balance to your business credit card.
Your small business credit card is a great tool, but donât make the mistake of overextending your business. Keep an eye on your debt-to-cash and debt-to-available-credit-limit ratios. Even if you have a charge card, with no spending preset limit, stay honest with yourself so that you won't spend more than you can repay.
Closely monitor the interest rates on your credit card. Though most card issuers give you notice before increasing the rate, youâre ultimately responsible for keeping an eye on itâand factoring it into your budget. (Note that charge cards don't have interest rates! Do watch out for any changes to your late fees, though.)
Speaking of interest rates, donât forget that the interest you paid on your business credit card is tax-deductible!
Pay off your balance on time and in full, whenever possible, to avoid interest altogether.
Treat your business credit card like a loan and only take what you need. Remember, itâs basically a line of creditâso use it for revenue-generating investments like equipment or inventory, and never for payroll or debt consolidation.