Credit Cards in Pocket

How to Pick the Best Business Credit Card

Alan Melton

Using a business credit card can be a great way to get your business up and running without spending your personal funds. This can be a great way to bootstrap your business. It can be like a short-term “loan,” which can be easier and faster than a bank loan. Use to purchase start-up items like furniture, equipment, and inventory; use it for rent, software, and licenses.

Know what you’re signing up for when you choose a credit card.

Be Aware of Your Credit Rating and Potential Legal Issues

Your Credit Rating

You need a good credit score to qualify. Most credit card companies require a score of 670 to be eligible. They will also look at your DTI (debt-to-income) ratio, history of timely payments, and your credit utilization (preferably below 30%) to determine your ability to manage debt.

Check your credit report beforehand to ensure information is accurate; if not, correct errors with the reporting credit agency before applying for the credit card.

Late payments will be reported and affect your credit score.

Potential Legal Issues With A Credit Card

Avoid using your business card for personal purchases to avoid later problems.

Be cautious with giving business cards to your employees; it would be a good practice to have policies and guidelines for them to follow when making purchases. Many cards let you set limits on how much an individual employees can spend and on where they can make a purchase.

Choosing a business credit card will keep your personal credit from being taken into account or affected by negative impacts. As far as liability, having commercial liability means only your business is liable for all debts; having joint and several liability means you will be personally responsible along with your business.

Factors to Consider About a Credit Card

There’s a lot to think about when choosing a credit card.

APR.

The annual percentage rate makes a huge difference in accumulated costs. This rate can range from 12-26%.  A card with 20% APR and a $10,000 average balance will cost your business $2,000 per year.

Introductory APR. To be competitive and attract more customers, many credit card companies offer a zero or low APR for a short period (usually 12 or 18 months).

Ongoing APR. Once that short introductory period is over, the rate will jump. Know your what to expect if a balance remains.

Fixed vs. variable APR. Some APRs have a fixed APR but some are based on the prime rate, which can change significantly.

Cash advances.

You’ll pay a higher APR for any cash advance.

Annual fees.

You could be charged anywhere from $0 to $500 a year as the cardholder.

Penalties.

Making a late payment or having insufficient funds for payment can cost up to $40 per event.

Rewards and Benefits.

Many business credit cards offer membership rewards for purchase of specific products and services like travel, office supplies, and internet. It also gives rewards for purchases at businesses like restaurants and gas stations.

Cash back on purchases. This benefit can vary by either being fixed (say 1% cash back on all purchases) or variable (5% cash back on, for instance, rental cars or hotels).

Points. Accumulated to receive free gifts or discounts.

Frequent flier miles. Accrue mileage rewards for certain purchases.

Travel. Get rewards like airport lounge access, bonus miles for hotels or airfare, or credit for in-flight Wi-fi, food, or drinks.

Sign-on bonuses. Given for new cardholders. Usually range from $100 to $500.

Balance transfers.

Interest-free periods for balance transfers is a common offering. Watch for length of time for no interest on transfers from other credit card. If you transferred a $10,000 balance on a business credit card with 15% interest, you can save that money over, say, a 12-month period – but – you’ll pay the ongoing APR (usually 12-26%) on the remaining balance thereafter.

Spending limits.

Consider how much your business will need for credit. Your spending limits can be negotiable.

Grace period.

Know how long you have before penalties are assessed for late payments. Most cards carry a 20 to 25-day grace period.

Protection.

Some cards offer reimbursements for damage or theft of purchased items.  Depending on the purchases you plan to make, look for warranties that cover purchased products or services.

Summary

Know your business spending habits. Know your expected business expenditures. Know your numbers – APR, penalties, credit limits, grace period, etc. Know the costs of using a business credit card. Know which card features that your business will need … then you can choose the right business credit card for your business. Check out this blog post on Getting More Cash Out of Your Business.