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The Small Business Guide to Using Credit Cards

If you're a small business owner wondering about whether it's worth getting a credit card for your business or confused about when you should be using a credit card for business purposes, we've got the guide for you.

This guide to credit cards for small businesses will help you understand all of the factors that should go into your decision to get a credit for your business, how to decide which credit card to get, and how to get the most benefit from using a credit card without putting your business at risk.

The guide is broken down into 4 chapters:

  1. Why Should My Small Business Have a Credit Card?

  2. Card Terms and Features

  3. Credit Scores

  4. Using Credit Wisely

Chapter 1: Why Should My Small Business Have a Credit Card?

man deciding between two cards

If you're asking this question, you've probably already considered some of the things that having a credit card might enable you to do.

Having a credit card will allow you to start building corporate credit, which will come in handy down the line if you're looking for a loan or additional investment. For a small business, you're probably more interested in having a corporate credit history for the ability to get loans to make a capital purchase or open a new location.

A credit card can help you to make those purchases before you have a long history built up in addition to setting you up for greater access to money later on.

Why Shouldn't My Small Business Have a Credit Card?

Before we continue, let's stop for a moment and think about why you might want to hold off on signing up for a credit card for your business.

  • Your business is habitually in the red and you're looking for a way to cover your budget's shortfall

Getting into a cycle of debt to keep things running is a surefire path toward catastrophe for your business, and also your personal credit rating.

  • Your business isn't reliably profitable

Aside from getting you into spiraling debt, applying for a small business credit card will put a hard pull on your personal credit report, which, if denied, can cause a ding to your credit score. Your credit score will recover quickly if you use credit wisely, but a temporary dent might make your life harder if you're trying to sign a lease or get a loan.

Having solid revenue that you can show during the application process reduces the chances of this happening and also reduces the chances of you using credit dangerously.

  • You think that your business should have one but don't have a specific reason why

You could be shooting yourself in the foot by signing for a card with great bonuses that you won't be able to make use out of. Think of a credit card as a strategic tool that should be carefully considered and then chosen based on clear needs and benefits.

Chapter 2: Card Terms and Features

Good Long Term APR

The exact APR you get with a credit card varies depending on your credit score and the credit card that you're applying for, but not all cards are created equal.

For our purposes, we'll define "long term" to be time scales longer than one year, because almost all business credit cards offer reduced APR during the first year. Often, the introductory APR can be very low, and the long term APR—the one you have to live with after that short introductory period—can be much higher.

Low long-term APR is one of the most important features of a credit card, especially if you're not sure whether you'll have to carry a balance past its due date every once in awhile.

Some cards like the Amex Plum card even include safety nets for businesses who regularly pay their balance early, but sometimes falter. In general, cards with safety nets are a compromise when it comes to other features like rewards. Don't let that discourage you from picking one up if you think it's going to be beneficial for your business to have a safety net in the long run.

When it comes to APRs, there's one huge catch, though: your credit card issuer can change the APR of your credit card, but they must give you 45 days' notice before they do so. There's not much recourse if your card issuer decides to raise your rates. If it happens, your best course of action is to try to pay the remaining balance as quickly as possible.

Long-term APR tends to rise far more easily than it falls, but if you pay off your balance every month, it shouldn't bother you. Think of the APR as the amount of interest that you'll have to pay to borrow money if you don't repay on time.

Good Short Term APR

Short-term APR is also an important consideration and includes everything from the introductory period after you sign up for the card. Many cards offer deals like 0% APR during the first year, which opens up some options for your business that wouldn't exist otherwise.

If your card has an excellent short-term APR, you'll be able to treat your credit card like a no-interest loan of sorts, though you should still pay it off every month as best you are able.

gadgets and tech laid outshort-term APR essentially reduces the cost of borrowing money, you can use a new credit card with low short-term APR to make a capital purchase or pay off a major expense during the introductory period. This means that merely signing up for the right credit card can allow you to buy the things you need to build your business—for a time.

Once the introductory package times out, you'll still be on the hook for any of your balance which you haven't paid back, although you'll also have to pay the normal long term APR.

Try to take advantage of the introductory APR as much as possible, and time your sign up tactically to coincide with a specific purchase.

Annual Fees

While only a few personal credit cards make you pay each year, most business credit cards will come with an annual fee, although many waive it for the first year or under certain spending conditions.

For a small business, these annual fees won't break the bank and will likely be less than $100—with a few notable exceptions — so don't let it dissuade you from picking a card.

If you're interested in pinching every penny, you can easily calculate whether the projected rewards of a card are worth the annual fee.

Other Fees

Some cards come with additional fees which may be detrimental for you—or potentially totally ignorable.

These kinds of fees include foreign transaction fees—typically charged as a percentage of the purchase cost—or underutilization fees. Judge for yourself which fees are deal breakers.

Signup Bonuses

Many business credit cards will offer you substantial bonuses just to sign up.

These bonuses are typically:

  • Card reward points
  • Other business reward points
  • Cash bonuses
  • Gift cards
  • Discounts
  • Frequent flier miles
  • Other one-off perks

As tempting as it may be, think about the signup bonuses last while you are weighing which card to apply for.

It's better to get a card that has good features in the long term and isn't as appealing in the short period after you've signed up for it. Your business is going to be around longer than the signup bonus will.

Analytics Tools

Aside from the direct monetary matters involved in getting a credit card for your business, many credit cards marketed to businesses have extensive budgeting and cost analytics suites that come as part of the card's online dashboard.

You probably shouldn't rely exclusively on these analytics tools to run your books, but they can be a good way to track the percentage of your expenses handled by credit as opposed to revenues.

Good Rewards

The rewards package of your credit card is even more important for a business card than a personal card because your business card will likely have a lot more money passing through it. While browsing for cards to apply for, you should be thinking about your business needs and how the card could help to serve them.

Certain cards offer exceptionally lush frequent flier miles or hotel loyalty points—very useful if you travel a lot for business. Other cards will even offer you rewards for advertising, shipping, and cloud computing expenses.

If you have a lot of fixed expenses that cleanly fall into a certain category covered by a certain rewards program, give the card special consideration.

The rewards structure for a lot of spending within a narrow category can sometimes eclipse cards which emphasize giving you cash back for a wide variety of purchases instead of rewards points.

Just remember: rewards points aren't cash, but they can still get you things that your business needs.

Cash Back

For most small businesses, cash is king.

Cash back options range in terms and value, although you can probably expect up to 5% back on certain transactions if you pick the right card. Some cards focus specifically on cash back and perform better accordingly.

The cash back features are another point where you can choose to fit your card directly to your business, as the percentage of cash you get back for each purchase tends to vary depending on the type of item or the location that you purchase it.

Importantly, the cash back features of your card may work in different ways. Some will automatically apply the accrued cash balance to your monthly statement, whereas others require you to disburse it manually.

Most cards have a yearly limit to the amount of charges that you can get cash back, so take care to make sure you won't be regularly spending more than the limit. In general, higher cash back limits are found in cards with better reward packages and higher credit score demands.

If used properly, the cash back features on your card are like a small discount on every purchase your business makes—but you have to remember to claim the cash and apply it to your card's statement.

For small businesses looking for cards which emphasize cash back, the Amex SimplyCash Plus card is hard to beat.

Added Perks

city buildings graphic

There are all sorts of other perks that can be consistently associated with your card, like:

  • Gift cards
  • Store credit
  • Business service deals
  • Restaurant deals
  • Insurance discounts

You shouldn't prioritize these things while picking a business credit card because they tend to be unreliable over a long period, but there are a few exceptions. If you see an added perk that will be exceptionally useful for your business, don't be afraid to factor it into your decision.

Once you've settled on a card that seems like the right fit for your business based on the primary factors like terms and rewards, you can check out the additional perks and factor them into your decision. Just remember that many of the added perks require spending money beyond what the perk covers, or locks money into use in a certain place.

If a perk makes you spend money on stuff you wouldn't otherwise want or need, your card is working for the credit card companynot your business.

A good card that has an interesting added perk is the Chase Ink Business Preferred Card, which offers the ability to claim damages on any broken cell phone whose monthly service bill is paid using the card.

For a small business, being able to get cash back in the event of a cell phone's theft of damage could make a big difference.

Chapter 3: Credit Scores

You'll need a personal credit history to apply for a business credit card. This history determines which credit cards you're eligible for, and also your APR.

When you apply for a credit card—even if it's for your business, and not for your personal use—you'll get a pull on your credit report, which can cause your credit score to drop slightly.

Be sure to check on your personal credit score before applying for a card to make sure that you have a good chance of getting the card you want. You'll temporarily lose a few points on your credit score with each application, so you should try maximize your chances of success and minimize the number of applications that you submit before being approved.

If you find that your credit score is too low to have a good chance of success for the card you want, you have a few options.

For most people, the right thing to do will be to get a less competitive card, which will typically have a higher APR and fewer benefits.

If you have no credit history at all or a very bad credit score, opting for a secured card—which isn't really a credit card at all—will be the first step that you can take toward building better credit. A secured card is a way of "borrowing" your own cash, which is held by the card company in the meantime.

This is obviously not ideal, but it can help you build (or rebuild) your credit until you qualify for a traditional business card.

Utilizing Your New Credit

Once you have the card in hand, the same rules as using a personal credit card apply to using your business credit card.

Your credit utilization rate will directly impact your credit score, as will your total amount of credit and length of time that you've had the credit.

Try to keep your monthly credit utilization at less than 10% of your total credit line, and remember to pay off your balance every month whenever possible—even during the introductory APR, if you can help it.

If you're not worried about improving your credit score, you can typically utilize about 30% of your total credit line without being penalized on your credit report.

Chapter 4: Using Credit Wisely

It's common knowledge that using a credit card can often make you spend more than you would otherwise.

The most important thing to remember about using credit is to treat it like cash that you'll have to give back in the future. If you buy something with credit and then repay your statement balance at the end of the month, you're doing it right. If you buy something with credit then let the balance float—eschewing your agreement to give the cash back when it's due—you'll be penalized by paying the APR.

The beauty of credit is that agreeing to give back cash in the future lets you buy things that you can't afford today, but might be able to afford soon if you saved consistently. By using credit, you don't have to wait for your savings to reach the price of the thing you're buying.

If the cost of something is only off-limits to you because you haven't saved up enough money to buy it today, buying it on credit can be the right choice.

This means that your payment horizon for buying things on credit should be very close to the present. As far as your card's statement is concerned, that means about a month.

You should always try to leverage your credit to buy things that will help you grow or earn more money for your business. In this case, credit is used an investment—you're using the capital to purchase something that will generate revenue for you later.

Be wary of using credit cards as a way to fund day-to-day operations, unless you are doing so in order to earn perks or rewards and have enough cash on hand to pay off the balance.

Using Credit Unwisely

money flying away

If something would take more than a month for you to save up forassuming that you're paying off all your other expenses at the same timeyou should avoid buying it on credit.

Buying things on credit is often incorrectly viewed as an excuse to buy things that you're nowhere near having enough money saved up to buy. Using credit this way leads to debt, which can put unnecessary financial strain on your business.

There are situations in which you can get away with using credit in this way—such as during the introductory APR—but many people and businesses fall into a habit of overspending.

Overspending leads to carrying a balance on your credit card. Carrying a balance means that you're paying heavy interest on the cash you've pledged to give back, which can spiral out of control very quickly.

If you find yourself in a bad situation where you can't afford to pay off your entire monthly statement, you can make a "minimum payment," which prevents your card from going to collections but doesn't prevent the accrual of additional interest.

It's no secret that making the bare minimum payment leads to a further treadmilling of your debt. If at all possible, pay more than the minimum payment if you find yourself stuck behind your balance.

Even paying a small amount above your minimum payment can dramatically reduce the time it takes you to pay off the balance and the amount of interest accrued over that time period.

Wise Credit Use Can Earn You Consistent Savings

cash outweighing credit

Using a credit card can actually be a strategic tool that saves your business money, rather than costing it money—if you plan and act accordingly.

You'll need:

  • A card with robust cash back features
  • All of your debt on the card paid up
  • Fixed business overhead that can be paid off in discrete chunks
  • Discipline and consistency

If you can resolve to devote a credit card to paying only for certain fixed expenditures every month—and pay it off in full before the due date—you'll be able to reap great savings for your business from using your credit card and accumulating the cash back or additional perks.

For this strategy to work, the purchases that you plan to make with your credit card should be broken down into individual chunks—like electricity costs, gas costs, and rent—which remain consistent and are already budgeted into your business expenses.

Simple charge these expenses to your card and then pay off the balance when you receive the statement. You'll accumulate the rewards or perks and avoid paying interests, fees, or other charges.

For this reason, you might want to think about having several different credit cards for your business—one to get cash back from your monthly fixed costs, and perhaps another which offers a great introductory APR so that you can make a large purchase with it without utilizing too much credit in the other card.

The key to smart credit utilization is to remain vigilant and use the credit only as a way to help your business grow and avoid situations where you're forced to use credit that you can't afford.

Wrapping Up

happy man with card

Understanding how your business can use credit to its advantage is something that you'll build on every month, and your business will adapt to the credit line that you've secured.

We've offered a few suggestions for exemplary cards in certain categories here, but the final choice has to be made by you based off of the needs of your business.

No matter which card you pick, be mindful of why you're interested in having a credit line to begin with and remember to pay off your balance every month to keep your credit score perky.


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