In a perfect world, every business would have all the cash needed to handle startup and ongoing expenses. However, most business owners find they need alternate funding sources, such as credit cards, to cover expenses.
Whether you’re a solo entrepreneur launching a home-based business or a financial manager in a growing enterprise, using business credit can be a strategic way to manage cash flow and invest in supplies, equipment, and resources. As you compare credit cards, it’s important to know the pros and cons of each so you can make informed decisions and take advantage of all the rewards of card membership.
This guide will help you navigate the complexities of business credit cards to help you choose cards that propel your business forward.
The Power of Business Credit Cards
A survey from Forbes Advisor says that "29% of businesses sought funding via business credit cards in 2022". Second only to loans and lines of credit, credit cards are a popular option for covering small-business financing needs.
Considering the many advantages of using business credit cards, it’s easy to understand the prevalence of this business financing method, providing:
- Additional funds to offset cash-flow issues
- Rewards for spending, such as cash back, sign-up bonuses, travel, and other incentives
- The ability to combine rewards from different cards to amplify the benefits and offset business expenses
- Higher credit limits than what’s possible with personal credit cards, for eligible businesses
- Streamlined expensing and faster rewards when employees become authorized cardholders
Key Factors to Consider When Choosing a Card
Not all business credit cards are created equal, so it’s crucial to do your homework when selecting a card. Here are some factors to consider:
- Annual fees: Some cards have steep annual fees but offer substantial benefits in return. Weigh the cost against the rewards to see if it's worth the fee.
- Foreign transaction fees: If you do business with international clients or suppliers, look for a card that waives these fees to save money on transactions.
- Other fees: Balance transfer, late payment, and cash advance fees can add up quickly. Read the fine print, and avoid pulling cash from credit accounts to prevent additional fees and unmanageable credit card payments.
Interest Rates: The Cost of Borrowing
Carrying balances often means paying interest on your purchases — and costs can easily get out of control if left unchecked. To avoid the high costs of borrowing, look for business credit cards offering introductory rates and lower purchase APRs.
For example, some cards offer 0% introductory annual percentage rates (APRs) on purchases or balance transfers for a set period — helpful for managing short-term financing needs or transferring balances from cards with higher APRs.
Plan your repayments carefully to avoid paying accrued interest after the introductory period ends. Also, take note of any balance-transfer fees, which are often calculated as a percentage of the total balance-transfer amount.
Rewards and Incentives: Maximizing Value
Business credit cards may come with enticing rewards in exchange for spending. Evaluate whether cards offer:
- Cash back: Ideal for businesses with high operational expenses, these cards let you earn a percentage back on every purchase that you can reinvest into your business.
- Points: Cardmembers may accumulate points on purchases and redeem them for travel, merchandise, or gift cards (great for employee recognition programs).
- Additional incentives: Some cards may offer more points in certain spending categories like gas or office supplies.
- Sign-up bonuses: Cards may offer cash rewards for opening an account and remaining a loyal cardholder.
Choose a program that aligns with your business’s spending habits to get the most out of rewards. For example, if you’re a speaker who travels across the country frequently for speaking engagements, you may want a card with travel rewards to offset the costs of travel. On the other hand, if you’re a salesperson who typically drives to local appointments, you may benefit more from a card that awards points for fuel purchases.
Remember, you can open more than one card to take advantage of combined bonuses if it works for your financial situation.
Additional Benefits: Beyond the Basics
Many business credit cards offer perks beyond the basics, such as:
- Free employee cards to simplify expense tracking and increase rewards
- Automated bookkeeping and expense tracking with cards that integrate with software programs like Excel and QuickBooks, helping track and categorize expenses
- Benefits like extended warranties, purchase protection, and travel insurance
Credit Requirements: Know Where You Stand
Before applying for any card, check your business credit score — it’s similar to a personal credit score but accounts for your business’s financial health and responsibility. Ranging from 0 to 100 when using the FICO Small Business Scoring Service, this rating may be based on various factors, such as the business’s payment history, debts owed, number of employees, and more.
A number of third-party platforms, including credit reporting agencies Dun & Bradstreet, Equifax, and Experian, allow you to check your business credit report and score. If you lack business credit history, here are a few things you can do to put yourself on the business credit map and boost your score:
- Apply for a business credit card that reports activity to credit reporting agencies.
- Use credit responsibly by spending regularly and paying bills on time.
- Monitor your business score as closely as you do your personal score. Report any errors promptly.
- Avoid maxing out business credit cards, and keep your utilization under 30% for the most favorable interest rates and credit terms.
Comparative Analysis: Finding Your Perfect Match
With all the available options, comparing business credit cards can feel overwhelming. Comparison tools, such as those available from CompareCredit.com, can help you evaluate multiple cards side-by-side. Focus on fees, rewards, interest rates, additional benefits, and other key features to find the card that best meets your business needs.
It can be helpful to brainstorm potential scenarios where business credit may be beneficial. Let’s say you’re a growing marketing agency with a monthly spend of $20,000. With a business credit card offering 2% cash back on all purchases, your agency would earn $4,800 annually in cash back. Additionally, with no foreign transaction fees, the agency saves on international transactions, boosting its profitability.
Mastering Business Credit Is Easier Than You Think
Choosing the right business credit card is a strategic move that can enhance your business’s financial operations and long-term growth. By considering interest rates, rewards, fees, credit requirements, and additional benefits, you can choose a card that supports your business goals.
If you’re ready to take the next step, explore the wide range of business credit cards available on CompareCredit.com. When you find the perfect fit for your business objectives, you can improve your overall financial health and pave the way for a prosperous future.
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