Here’s What You Need to Know About Choosing a Credit Card for Your Small Business

When you’re running a small business, it can be hard to find the cash to keep things running smoothly. That’s especially true when your business is young, and you haven’t yet established a reliable cash flow. When you’ve got bills to pay and you’re still waiting on a much-needed payment, getting a bank line of credit, seed money from an investor, or even a personal loan from a relative or friend isn’t always possible – or desirable.

Tool shop owner

A small-business credit card may be the answer. This card can give you the financial flexibility to cover expenses that come up when cash is tight, letting you carry the debt until you get your next payment. Using a business credit card can also help you build up your credit history, improving your credit score and helping you qualify for small-business loans down the road. Just be careful to choose the right card, so that you’re not stuck with exorbitant fees or other poor terms.

Who’s Using Business Credit Cards?

You may be surprised to learn that credit cards are one of the most popular ways entrepreneurs secure extra purchasing power. According to a 2009 survey conducted by the Small Business Administration, 59 percent of respondents said they use credit cards for their business purchasing needs. A business credit card can help you build your Dunn and Bradstreet (D&B) score, which is the business version of a FICO score. The only way to build a credit history and a solid D&B score is to obtain and use credit. Just like wise use of a credit card can help a young person just starting out on his or her own to build a credit history, it can help your young business establish its credit history, too.

Using a credit card for business purchases will also make things easier come tax season. A credit card can help you separate business from personal expenses, so taking those all-important business deductions will get a whole lot easier. Many business credit cards categorize purchases on your statement, making budgeting easier.

But there’s a caveat. Seventy-nine percent of those survey respondents reported that their credit card terms had worsened over the 12 months prior to the survey. In order to avoid falling into that trap, it’s vital that you take the time to choose the right small-business credit card for your needs.

How Much Does That Card Cost?

Unlike consumer credit cards, it’s rare to find a no-fee small-business credit card. Of course, you won’t have to worry about late fees, because you’ll pay all of your bills on time each month. You can avoid paying interest if you pay off your balance in full each month. It’s important to be honest with yourself about whether you will or can afford to do this, however.

If you choose a high-interest card, and then don’t manage to pay off that balance during your one-month grace period, the interest charges could outweigh any of the card’s benefits. Be especially wary of teaser rates; what happens after that low introductory rate expires? You need to know.

Will you need to travel abroad for business? Choose a card with no foreign transaction fees. Although small-business cards aren’t eligible for the protections offered to consumers under the CARD Act, you may be able to deduct any interest paid from your taxes — a deduction not afforded to those with personal credit card debt.

What About Rewards?

Many business credit cards offer rewards of some kind, but you’ll need to think carefully about your business’s needs and your spending habits to find the rewards program that will work best for you. If your business has you traveling often, you may want a card that lets you accumulate airline miles. If you don’t travel that much, maybe a cash-back rewards program would be better-suited to your business needs.

Many such rewards offer extra points for certain purchases like restaurant meals or gas, which can be especially valuable if your business has you entertaining clients or driving frequently. You may even benefit from a card that offers discounts on specific products, but make sure you’re going to have a use for those products — otherwise your points will be wasted.

When comparing credit cards, make sure you carefully read the fine print in the disclosure. Within it, you’ll find all the crucial information you need about interest rates, fees, penalties, and terms. You need to know what you’re getting into ahead of time, because closing a credit card account can hurt your credit.

A small-business credit card can be a lifeline for your business, giving you the financial wiggle room you need to squeeze out of money tight spots. But choose your card carefully — if you don’t, you could find yourself struggling with high interest and poor terms.


Leave a Reply

Your email address will not be published. Required fields are marked *