Choosing the Right Business Credit Card
Choosing the Right Business Credit Card
When trying to establish business credit one thing that owners should strive to do is to separate business assets and expenses from personal ones. One of the simplest ways to separate small business expenses is to obtain and use a business credit card. Since building and maintaining business credit has a great impact on business operations, owners must not just get any credit card, but find one that is appropriate for their particular business. Since in the current economic environment it is getting increasingly difficult to obtain any type of credit, small business owners should determine how to choose the right credit card.
Since the 2008 credit crunch and the tightening of the credit markets, business credit cards have become the preferred financing vehicle. In today’s market it is easier for an owner to obtain a business credit card with substantial limits than to obtain a business loan. Although the terms and interest rate on a business loan would be considerably better, in the absence of lending capital, business credit cards are often the next best thing.
Although more difficult to obtain than in years past, business credit cards are now available with an abundance of different options to choose from. Whether you require a low interest rate, higher credit line, low annual fee, reward points, or special services, it is possible to find a business credit card with a mix of options that is appropriate for your particular business.
A summary of some of the most important card options and terms are as follows:
- Interest Rate: Depending on how you plan to use the card the interest rate may or may not be an important factor. If the card is simply a substitute for cash and not a financing vehicle than interest expense should not be a big factor. However, since you never know if you may have to rely on the card as a source of capital it is always best to try and get the lowest possible rate available. If rate is not an issue then a slightly higher rate can be used to obtain a number of other options. Be careful of low introductory rates that revert to something above market after the intro period is over. For business credit cards the rate reverts to something above 12% depending on the company’s business credit rating. Issuers have the right to change the rate depending on the borrower’s credit rating, providing businesses another good reason to maintain good business credit.
- Credit Limit: Business credit and a business’ credit rating will also impact the amount that the card holder can purchase before having to pay down the balance. If a good credit rating is maintained, issuers can be solicited to increase the credit limit if necessary.
- Fees: Some cards, especially those with significant rewards programs, will often ask for an annual fee that will frequently be waived for the first year. Normal fees range between $25-$95, depending on the services provided.
- Rewards & Incentives: Card issuers have learned how to segment their products in order to cater to specific market sectors. By providing unique reward and incentive programs, card issuers hope to increase their market share within a certain customer demographic or preference. One example is the travel reward cards that provides free or discounted airline tickets that are awarded after a holder has spent a minimum amount with the card. Other programs will provide cash incentives calculated as a percentage of total purchases within a specific period.
- Concierge and Member Services: In order to attract new “members” cards will also provide special services similar to those offered by a high quality hotel concierge. Card holders can now use the issuers network to: find and purchase concert tickets, shows, emergency medical and legal assistance, travel, accident and auto rental insurance, make dinner reservations, and much more.
- Expense Tracking: Issuers are now providing detail expense tracking and reporting as part of the card services. Having expenses tracked, categorized, and compared to previous time periods helps companies in budgeting. Also, expense analysis is extremely helpful when preparing income taxes.
Business credit cards are a great way for business owners to separate business from personal expenses. Large companies will sometimes issue business credit cards to senior personnel to track expenses and to reduce the cost of travel and other business expenses. In addition to helping the budget and analyze business expenses, having a well managed business credit card will also help a company build its business credit. The credit card history can be included in a credit profile along with vendor payment histories to help demonstrate the company’s credit quality to prospective creditors.
Since there are many potential combinations of card services that may be applicable to your particular business, owners should visit websites like CreditCards.com to compare the features and benefits of available business credit cards.
The information and advice provided by Dun & Bradstreet Credibility Corp. is provided "as-is." Dun & Bradstreet Credibility Corp. makes no representations or warranties, express or implied, with respect to such information and the results of the use of such information, including but not limited to implied warranty of merchantability and fitness for a particular purpose. Neither Dun & Bradstreet Credibility Corp. or any of its parents, subsidiaries, affiliates or their respective partners, officers, directors, employees or agents shall be held liable for any damages, whether direct, indirect, incidental, special or consequential, including but not limited to lost revenues or lost profits, arising from or in connection with a business's use or reliance on the information or advice offered by Dun & Bradstreet Credibility Corp.