Before you apply for a new small business card, whether it’s your first or your tenth, do some legwork to make sure the new card is a good fit for you and your small business.
Here are 10 questions to ask about a business card before you fill out the application:
What’s the rewards structure? Do you want cash back or airline miles? Cash back rewards may be more modest, but are easier to track and use. Airline miles may offer more bang for your buck, but you need to be sure they’ll get used, especially if your business doesn’t require much travel.
What perks does the card offer? If you travel a lot, travel perks may be a top priority. If you buy pricy computer equipment, you may care more about perks like extended warranty protection on items purchased with the card.
Does the issuer extend CARD Act protections? Consider whether the issuer voluntarily extends CARD Act protections to its business cards. If you pay your bill every month in full, without fail, and your business is generating plenty of revenue, the CARD Act protections may not be one of the major factors you weigh when choosing a card. But if you’re just starting out or if you may need to carry a balance at some point, this could be an important consideration.
What’s the annual fee? If you’re just starting out and you can’t afford to or don’t want to pay a big annual fee, you do have options. A few business cards don’t charge an annual fee. On the other end of the spectrum, some cards charge a hefty $450 or more, but may offer rich perks that to some business owners are more than worth the cost.
Does the issuer offer extra cards for employees? If you have employees who will need cards on the same account, check to see if this feature is offered, how many cards you can get and what employee spending tracking tools are included.
What does the fine print say in the terms and conditions? It’s a good idea to read the terms and conditions before you apply for a card. Business card issuers aren’t required by law to give you 21 days to pay your bill (see chapter 4), so pay special attention to the grace period, which is the number of days between the statement issue date and the payment due date.
What bank issues the card? If you have a brand new business and don’t yet have much revenue coming in, consider applying for a card issued by a bank with which you already have a relationship. For example, you may look at the bank where you keep your personal or business checking account, or one of the issuers of your personal credit cards. A bank, even a large bank, to which you’re a known commodity may be more likely to extend you credit. If you have a consumer rewards card you like, consider getting a business card from the same issuer, so the points can be combined in the same account for bigger rewards.
Does the issuer report to consumer credit bureaus? Though most business card issuers don’t report to the three major consumer credit bureaus unless the account is severely delinquent (or in some cases, both severely delinquent and closed,) you should know the practices of a card issuer you’re considering before you apply.
How’s your credit? Because issuers will look at your personal credit, consider your credit history and score before applying. If you have good to excellent credit, you may be eligible for a wide array of business cards. Even if your credit is a little shaky, you may still have options. For example, the Capital One Spark Classic for Business may accept applicants with just fair credit. And several issuers offer secured business credit cards if you need to build your credit.
Do you want a charge card or revolving credit? Some business cards, rather than offering revolving credit, offer what’s known as open-term credit. Open-term cards, more commonly known as charge cards, must be paid off in full every month. This is a big consideration, especially if you ever want or need to carry a balance, even for a short time period.
USING YOUR SMALL BUSINESS CREDIT CARD WISELY
Just as with consumer credit cards, the ideal way to use a business credit card is as a convenience tool for your small business. You run business purchases through your credit card to create a spending record, collect rewards and protect yourself with benefits like purchase protection, extended warranty protection and travel insurance. Each month you pay your bill in full.
WHY IT’S RISKY TO GO INTO BUSINESS CREDIT CARD DEBT
Despite its benefits, a business credit card also has the potential to sink your small business if you get deep in debt. In fact, Kauffman Foundation, a nonprofit organization that offers training to entrepreneurs, studied the use of credit by new businesses and found that about half of new businesses go into debt, and that debt usually includes carrying a credit card balance.
It’s downright risky to bootstrap your startup with credit cards. A Kauffman Foundation report, The Use of Credit Card Debt by New Firms, found that for every $1,000 in credit card debt a business carries, the chance of that business shutting its doors increases by 2.2 percent. So steer clear of business credit card debt unless it truly is your best option.
WHEN IT MAY MAKE SENSE TO USE A CREDIT CARD FOR A SHORT-TERM LOAN
A credit card can offer a good option if you need cash fast, know you can pay the loan back quickly, and can’t afford to wait or jump through hoops for another type of financing.
For example, I have a client who owns a small retail shop and wanted to open a second location. The business owner needed to put down $5,000 to get a lease on the commercial space, and he didn’t have the cash readily available. Other business owners were competing to lease the location, and the shop owner didn’t have time to seek a loan, so he took a cash advance on a credit card. Taking a cash advance on a business or consumer credit card is usually a bad idea because interest tends to be higher than the interest charged on purchases, and it starts accruing from the day you take the cash advance. In the shop owner’s case though, the tactic worked well. He got his new space and paid the credit card balance off quickly.
KNOW YOUR BILLING CYCLE TO AVOID INTEREST ON ROUTINE PURCHASES
Time your credit card billing cycle with your cash flow so you don’t inadvertently get hit with interest on a credit card balance. For example, know what day the bill is issued every month and how much time you have to pay the balance in full without getting charged interest.
Don’t get tempted to rely on your business credit card as a cash management tool, which could cause you to sink into high-interest debt and may even threaten the survival of your business.
Business credit cards, especially rewards cards, tend to have high interest. The average business credit card APR in 2016 is about 13 percent, but business card APRs can reach 20 percent or higher.
If you do need to finance a purchase you know you can pay off in less than a year, look for a business card that offers you an introductory 0 percent interest deal. For example, the Chase Ink Cash Business Credit Card offers 0 percent interest on purchases for the first year. So you could, for example, furnish your new office on a card without paying interest as long as you pay the balance in full within the introductory period. Make sure to pay your bill on time every time because a late payment can void your no.
BUSINESS SPENDING PAY WITH REWARDS AND PERKS
Rewards and perks are two of the most important benefits of getting a business credit card. But benefits vary widely, so it’s important to be savvy about card benefits to get the most out of your card.
Use a credit card comparison site to easily compare business card offerings. For example, CreditCards.com and Credit Karma offer detailed business card comparisons.
Here are some of the rewards and perks commonly offered on business rewards cards:
BUSINESS CARD SIGN-UP BONUSES
Just as with consumer rewards cards, sign-up bonuses are common on business rewards cards. These incentives to apply for a new card can be very lucrative, often worth hundreds of dollars. In fact, getting a sign-up bonus may be your best chance to get the biggest rewards bang for your buck.
To earn a sign-up bonus, the cardholder typically must spend a certain amount of money on the credit card within a certain time period after opening the account. This requirement is known as “minimum spend.” Each offer is different but a business card issuer might offer a bonus of 60,000 points for spending at least $5,000 in the first three months.
Generally, small business cards offer slightly higher sign-up bonuses than consumer cards but may require a little higher minimum spend. For example, a business card sign-up bonus might be 10,000 points higher than the bonus on a similar consumer card from the same issuer, but also might require $1,000 more in initial spending.
If you’re just starting out, or don’t have a lot of operating expenses, and aren’t sure you’ll be able to make the minimum spend, it can be helpful to strategically plan the opening of a new card for just prior to making a large, necessary purchase like a computer or a trip to a trade show, Clancy suggests.
BIG POINTS PER DOLLAR ON BUSINESS SPENDING
Business rewards cards may be more lucrative than consumer rewards cards in another way: the points you earn for regular spending. It pays to spend some time examining where your business spends money and choosing the card rewards program that would most benefit your business.
Some business cards offer increased rewards earnings, up to five points per dollar for items such as office supplies, telecommunications and internet services, and travel. Some consumer cards offer five points per dollar spent in rotating categories (for example, home improvement one quarter, restaurants the next) but they usually have low caps, only allowing the higher earnings on a certain amount, such as the first $1,500 spent in that category. That limits the amount of bonus rewards you can rack up. However, on business cards, if there are caps, they tend to be much higher. For example, a business card may offer a higher earning rate on the first $50,000 spent in a year. That makes it easier to earn more rewards on a business card, for the same dollar amount of spending, than on a consumer card.
Some business cards also offer you extra reward bonuses based on the total amount you spend each month. Business cards may also run periodic programs where they boost rewards points in certain categories, such as rental cars or gas, for a certain time period.
PREMIUM PERKS FOR BUSINESS TRAVELERS
Business cards may be more likely to offer premium travel perks like airport lounge access. Since day club passes to these airport lounges can set you back $50 a day or more if you pay for them, this perk can pay off, especially for frequent travelers.
These lounges offer you a quiet place to work, as well as free snacks and beverages, TV and WiFi. Some cards also offer priority boarding and free WiFi on flights. The perks on many business cards are geared toward what small business owners tend to do a lot – travel.
USING YOUR BUSINESS CARD REWARDS POINTS
Once you’ve racked up all those rewards, here’s the fun part: using them. You have a variety of options: You can use the cash back to boost your business or to reward yourself with a massage or dinner out for a job well done. You can use miles for business trips or vacations. Or you can get creative and use your credit card rewards as an essentially free way to reward your employees. For example, each month clothing retailer Betabrand sends one employee on an international trip using the past month’s credit card rewards. Employees have gone to Iceland, Japan, France and other exotic locales. I am using my points to go to Italy this fall – first class and free!
What can you do with wise spending an use of your rewards?
Until next week
Join me every Wednesday on my podcast “Unlocking the Secret to Living Rich”. If you have questions or comments you can contact me at my email firstname.lastname@example.org or find me on Facebook, Twitter or Instagram @cindybbrown777
Who is Cindy B. Brown? Cindy is a CPA, MBA, CFO, mastermind facilitator and board member of public and private companies, business consultant, entrepreneur coach and a foremost expert in the field of
business mastery. Cindy’s purpose is to motivate, educate and inspire people to live their richest life. She is the host of “Unlocking the Se