Business credit cards can provide a variety of benefits and convenient services for your business, but it’s not always easy to sort through the many competing options. Before choosing a card for your company, make sure you understand how it works, how your business will use it and what its potential perks and costs will be.
Understand business credit cards
Business credit cards can offer a wider range of financial flexibility than more traditional business loans or, for small-business owners, personal credit cards. Investopedia writer Julia Kagan notes that applying for a business credit card is typically a simpler process than getting a loan. A business credit card may also come with higher interest rates and require a personal payment guarantee.
Personal credit cards can be used for both private and business expenses. However, NerdWallet writer Lindsay Konsko points out that business credit cards are intended only for company use. That’s a perk, though — paying for all professional expenses on a business credit card makes it much easier to track spending for tax purposes. Business credit cards generally come with much higher credit limits, too, and they’re a good way to help build your business’ credit history.
Understand your needs and spending habits
It’s important to understand the spending needs and habits of your business before selecting a credit card. If your business experiences irregular cash flow, you may want to choose a card with a lower annual percentage rate so you can carry a balance. If you don’t need that feature, consider a card with a higher APR and more rewards.
Kayla Harrison writes for Business.com that business credit cards offer a variety of rewards and perks, so it’s a good idea to examine which of these might apply to your business. Some cards offer 1 percent to 5 percent cash back for specific purchase categories. Do your business expenditures — like office supplies, cellphone service or client meals — fit into these? If so, a cash-back card could save you money. Some cards also offer cash back or reward points for gas, flights, hotels and restaurants. Other perks you might encounter include signup bonuses, 0 percent introductory APRs and airport lounge access.
Understand potential costs
As you consider the benefits of a dedicated credit card for your business, Harrison notes that you’ll also want to keep in mind any potential costs. You’ll want to take into account a card’s APR, whether that APR is fixed or variable and whether you’ll be carrying a balance — or you could end up incurring higher charges than you’d prefer. You’ll also want to keep an eye on the annual fees charged by the cards you’re considering. Sometimes, these could end up costing you. In other cases, the rewards offered by a card could ultimately outweigh the fees. It’s also wise to educate yourself on the costs of late or missed payments, including fees and higher APRs.
Understand your options
Many websites are available to help you find the best business credit card options. The Wall Street Journal recommends Bankrate.com, CardRatings.com and CreditCards.com for seeking out, sorting through and applying for the best cards. WalletHub.com, CreditKarma.com and Consumer Reports are also valuable sources of information.
No matter which card you end up selecting, be sure to carefully read the terms, conditions and fine print so you’ll have a full understanding of your card’s benefits, limitations and costs. Once you have your card, make sure your business has procedures for using it with maximum effectiveness. With careful planning and management, your business credit card can be a powerful financial tool for your company.