A credit card might be the right choice for your business…
It is generally a smart idea for small businesses to have a credit card account. Many business owners make the mistake of using a personal credit card for their business needs, which can spell disaster to their personal finances, if the business fails. By using a card specifically opened to handle business expenses, personal finances will be protected. The two most obvious reasons why a small business may want to consider a business credit card are the ability to conveniently make large purchases and to effectively manage and oversee expenses. In addition, the reward incentives that are offered with most business cards are sweeter than those offered by personal credit cards.
Here are some things to consider when choosing a a business credit card:
Business Credit History Reporting
Business owners should make sure that the card they choose reports account activity to a business credit agency, like Dunn & Bradstreet or Experian Business Bureau, and not a personal credit bureau. This will guarantee that any major business expenses or financial problems with the business won’t affect your personal credit rating. In addition, by reporting to a business credit reporting agency, you will be building a credit history for your business that will help you secure the best loan terms when you look for financing down the road.
The Importance of a Low APR
The annual percentage rate (APR) of a credit card, whether for business or personal use, is considered the most important factor when choosing whether it meets your needs. Regardless of your ability to pay off the balance or your need to carry it over each month, the lowest montly APR should be your focus. Consider the savings between an APR of 7% and 12% on a $10,000 balance – almost $3,500 over the life of the balance, if payments of 2.5% are made monthly. 0% APR offers can serve up a great deal of savings, as well, but be sure you can pay off the balance before the APR returns to the standard rate, which is typcially at the high end.
Maximize Your Rewards
If you’ll pay the balance off each month, a bit higher APR is may be acceptable while earning the benefits of a business rewards card. Reward programs offered to businesses are often more lucrative because the high amount of credit that is often borrowed. Rewards include 1% to 5% cash back, frequent-flier miles and even more creative perks like free gasoline and retailer gift certificates. Reward cards that limit the amount you can earn each year will reduce the payback, especially if your business spends tens of thousands of dollars, which would earn a bigger reward without a cap. Some programs offer discounts at specific merchants and travel benefits that are particularly beneficial to small businesses. The best rewards card is one that earns rewards on the purchases you make most and offers rewards you will actually use.
Choosing the best reward credit card for your business requires that you project how much you will spend and do the math to see what rewards will be earned. Factoring potential rewards get a bit murky when a program offers a tiered rewards program that offers a higher percentage reward on certain types of purchases. In cases like this, be sure the higher reward is paid on the items you purchase the most, such as office supplies or gasoline.
Online Account Management Services
Business owners understand the importance of keeping on top of their finances. With online account services, personal and business accounts can be maintained separately. Businesses can have cards issued to individual employees with set spending limits. Account activity may be available for review and monitoring online. Some card services include the ability to transfer account data to business account software such as QuickBooks.
* Be sure to see our complete list of business credit cards >