Business Credit Cards
Business credit cards are those issued to businesses rather than individuals. Although they can be a useful tool for helping to grow and expand your business, they can also work against you if you’re not careful using them.
Not every small business may seem to need a credit card, but business credit cards can give your business a level of credibility as well as other benefits. This type of credit card is handy to have in an emergency when you might have an unexpected business related repair or purchase that has not been previously budgeted for.
What are the benefits of having a business credit card?
Business credit cards can help protect your personal credit and resources if the business folds or otherwise fails to meet its financial responsibilities, according to the U.S. Small Business Administration (SBA). Rather than have the brunt of the fallout land directly on your personal financial lap, business credit cards can offer a layer of protection. This is especially relevant to business owners who continue to rely on personal credit cards for business-related transactions.
Another benefit noted by the SBA is the ability to easily keep track of your business expenses. If you rely solely on a business credit card for your transactions, instead of mingling personal and business items on a single credit card, your bookkeeping can be much quicker and easier.
Instead of slogging through a credit card statement to separate personal purchases from business purchases, the business credit card statement will only reflect your business expenses. This can be a key time saver during tax time, especially when faced with the often-complicated task of completing your business tax returns.
In addition to a level of credibility, a business credit card can help establish a strong financial foundation for your business, the SBA says. A business without a credit card has a lesser chance of being approved for business loans and other financing, as holding a business credit card already proves your business is worthy of receiving credit.
One final benefit is the ability to pay off bills and make purchases even when cash is not readily on hand. Businesses sometimes have to invest money up front in order to receive a return on the investment, and a business credit card can offer a way to do this.
What are some caveats of business credit cards?
Two of the biggest caveats concerning business credit cards are not keeping up with the payments and not properly researching a card to make sure you’ve found the card that works best for your business.
Finding a card that works best for your business can largely depend on your business’s financial habits, according to MSN’s Business on Main. If your business typically pays off monthly bills in full as they come in, for example, finance charges for carrying a balance due may be less of an issue than if your business needs more time to pay off debt.
Business credit cards can also come with a surprise increase in rates and fees, Business on Main reports, because they are not included in the Credit Card Accountability, Responsibility and Disclosure Act passed in 2009. Under the Act, companies must inform individual consumer credit cardholders of changes in fees, interest rates and other amendments to their credit card accounts. It also protects against raising the interest rate on money that is already owed, with only new balances incurring the higher fees. These same protections to do not apply to business credit cards.
Other caveats to note while applying for a business credit are not applying for too many cards at one time and not giving any personal guarantees if you can avoid it, the SBA warns. Each credit card application your business completes will send out an inquiry on your credit report from each credit card company. Having a large amount of inquiries on your report can bring down your credit ratings. Offering a personal guarantee for your business credit card takes away the protection the card could otherwise provide in keeping your personal finances separate and secure.
What else should I know before applying for a business credit card?
Not only should your business credit card match your business’s payment habits, but it should also match your business’s other financial habits, Business on Main explains. This means researching the different types of business credit cards available and going with one that suits your specific needs. Examples include rewards credit cards, which offer discounts and other rewards, secure credit cards that can benefit businesses with poor credit ratings.
Reward business credit cards geared toward your business may include those that offer discounts from suppliers or other businesses you regularly use, which can automatically save you money going about your regular business. Secure credit cards require a special account that covers your business’s credit limit as added security that expenses will be covered even if you cannot pay the bill.
Is there anything I should do before applying for a business credit card?
The SBA and Business on Main both advise checking your business’s credit score before you apply for a card to make sure your score is up to par. If it’s less than 750, you may want to wait until you can raise it to acceptable levels before applying. Ways to boost your business’s credit rating include paying all your bills in a timely manner, paying off all outstanding debts and keeping any existing cards to help illustrate a strong credit history.
An excellent credit score coupled with appropriate research and attention to business credit card details can help ensure your business receives a credit card that works for your corporate needs.