When it comes to business finances, having the right business credit card can make you a powerful force. On the flip side, choosing the wrong card could contribute towards your business’s demise.
That’s why it’s so important to make sure you apply for the right business credit card. For best results, you need to know the right card not only based on it’s limits and rewards, but also dependent on the business that will use it.
Here’s a better explanation…
What Type of Business Credit Card Do You Need?
To best decide on a credit card for your business, it’s essential to think about what you need it for and how it will get used. The answer to those two questions will have a severe impact on which particular card is best for you.
Some things to think about include …
How often will you use the card?
If it’s your main line of cash, look for terms that allow for excessive card use. Make sure you do not get hit with any miniscule charges. You do not want to spend a fortune on balance transfers, ATM uses, and etc.
Where will you use the card?
What type of stores do you plan to shop at? If your card is just for food and gas, there are plenty store-based credit cards that give rewards on gas purchases. The same goes with many different types of items; if you frequent a particular store, you can also look for greater kickbacks through a store-based rewards credit card.
Will you pay the card off every month?
Whether you plan to pay the card off in full will also play a role in your decision. If you plan to carry the debt, you must focus even more on the interest rate of the card. If it’s for periodic purchases, you might want to consider a 0% APR credit card that gives you enough time to pay off your outstanding debt.
Will you stumble upon hidden expenses?
You need to understand all the possible fees a credit card has before you decide it’s right for your business. It’s easy for excessive charges to get hidden through sneaky terms. By dissecting all the little details, you can determine which credit card will be the most cost-effective for your business.
That said, you do need to know which fees you will most likely need to watch out for along the way. Some areas where credit card companies charge fees include;
The APR (or annual percentage rate) of your card will dictate how much you spend on a year for the balance you carry. If you borrow and pay off the same amount each month before your cutoff date, it’s possible to pay $0 in a year while using a credit card with a 29% interest rate. In most cases, you have 20 or 30 days to pay off your balance before interest applies on non-0% APR cards.
Try and estimate your monthly carried balance to get a good idea on how much your total interest payments will vary by card. You might want to pay a premium for a 0-% card to avoid those interest charges, although it could also make sense to do the opposite. This all comes down to your situation, and how often you will use the card versus pay it off.
Never settle for a lower card rate at the cost of a higher balance transfer fee. These cards are worth their weight in gold, but only when the balance transfers come at no cost. Yet, balance transfer charges can run upwards of three to five percent of the purchase total. So, no matter how many bells and whistles the card has, stay clear from any cards that charge for balance transfers.
Your business will not always have immediate cash to use. Having fast access to your business credit limit can come in handy. Yet, the majority of business credit cards will charge either a fixed amount or a percentage of the total when you perform a cash advance. Be careful when deciding which card to apply for, as you do not want to dish out two to four percent just for the advance.
Closure or Inactivity Fee
You might want to avoid signing up for a credit card that has a fee for canceling the card. Even more so, it’s a good idea to stay clear of any cards that charge an inactivity fee. This is important for any business owner who needs a business credit card but does not plan to use it every day. If you do not use the card enough, or spend enough dollars worth, it could shut off on it’s own (at your expense) so be careful of that.
Foreign Conversion and Transaction Fees
When you use your credit card in another country, a ‘foreign transaction’ takes place to convert the two currencies. The credit card company then charges you a foreign conversion fee of around two to three percent of your purchase total. If you are looking for a business card to use while traveling, make sure to find one that includes no foreign conversion or transaction fee.
The first time you are late for a payment, you can expect to pay around $20 for your delinquency. This amount will go up to $35 for a second offense. Also, the card company can raise your APR after making a late payment — but, they must now wait 60-days and give you written notification ahead of time.
The Best Type of Credit Card by Business
Take a look at the most popular types of business credit cards:
Business Rewards Credit Card
A rewards card will give you cash, points or other valuable kickbacks as you use the card. The amount you will receive back is dependent on the card company. This is often in the range of 1-2%, but it can vary a lot.
When choosing between the best rewards cards, you have to be careful about two things. First, you need to make sure the rewards cap is not set so low that the rewards value gets demolished by the card fees. Second, you have to make sure you are not getting a premium reward for shopping at a specific store.
If you are getting a business rewards card for a home renovation company, you might benefit from limiting yourself to a store-based card. These will still be useful outside of that business, and some still pay rewards when shopping elsewhere. The reason for limiting yourself would be to capitalize on store-based rewards, which are often given to local small businesses.
Business Travel Credit Card
If you find yourself traveling on the road a lot, you might want to look for a travel-friendly credit card to use. This is important because of the extensive fees that can come about when using your credit card all across the world.
Frequent travelers should look for the highest travel rewards they can get. This will create further savings (or profits) down the road. Some cards offer promotions on flights, hotel bookings, and more, when you use their card. When comparing different travel rewards cards, make sure to look at the point multipliers; depending on how (and where) you spend your money, it’s possible to have your reward points increased a lot this way.
If you only travel once and awhile, stick with a normal business credit card. You can always take money out to exchange off the card instead. Of course, make sure to save all your receipt from the trip so your accounting stays in order.
Start-Up Business Credit Card
Things are a little different when you are just starting out. It’s obvious that a lot of your costs will come about in the first few months. If you have enough business capital, just go for a rewards card and enjoy the kickback from your extensive spending. Otherwise, focus on keeping your borrowing costs to a minimum until your cash flow picks up.
If you are just starting out and you plan to use your credit card for your start-up costs, it would be good to look for a 0% APR card. Most of these are set up with a 0% interest period for the first year. This is a considerable amount of time to get things in order as a new business, and avoiding the interest in the process is a huge plus.
Further, any business with strapped pockets might want to look for a start-up business credit card that offers product warranties. There are a few out there that will offer coverage against your purchase under certain circumstances. This can come in handy if it ever saves you from having to buy the same product all over again.
Mobile Business Credit Card
If you run a business that’s always on the go, such as a catering or taxi service, then you need to focus on those mobile expenses. The most obvious option would be a gas rewards card, which will provide you with a discount on your while also kicking back a reward. These cards are a dime a dozen, so you can get picky when it comes to specific fees and terms.
Self-Employed Business Credit Card
A business credit card can really help someone who is self-employed. If you are self-employed and spend a lot on business expenses, a rewards business credit card is perfect. This is especially true if you have gas and meals to charge to a card as business expenses. If you want a good self-employed business credit card, you might need to find a co-signor who has excellent credit.
Getting a credit card while self-employed is not easy. You will find yourself running up a bill while waiting with little notice of when work payments will arrive. This is why many go the route of getting a cosigner to help; few qualify for a business credit card in the first place. If you are going for a self-employed business credit card, please make sure to avoid any high-rate, high fee cards that are pushed for easy attainability.
How to Compare Credit Cards Online
You can search in Google for cardholder reviews by card, simply by entering the word ‘review’ at the end of the card name. This will reveal many different reviews, although it’s possible for some to come from unreliable sources. If you find forum discussion about the card, check those pages for further insight from real cardholders.
It’s easy to compare credit card options online, as you can find everything you need to know with just a few mouse clicks. Use that to your advantage and research deeper about each card before you pass on it or apply for it. Plus, with Google’s search functions (example: inurl:review ‘credit card name’) to make it easy to find specific details, you should have no problem identifying the best card for your business.
What Else Should You Consider?
When choosing a business credit card, you cannot just choose a card that looks cool. It’s also not just about finding the ‘highest rewards’ you can get. There are way too many factors that come into play, aside from the obvious.
Think about everything, no matter how far-fetched it might seem; everything becomes relevant when choosing the right credit card for your business.
For example, you might find a credit card that offers great rewards while paying for purchases with it in other countries. That sounds great, especially considering how most cards cost more to use when traveling abroad. Yet, the incentive is forcing you to increase your vulnerability to identity theft risks. You can always find identity theft prevention tips to help keep you safe personally, but your business’s security should never run on a gamble.
Further, you might want to consider the card’s sign-up bonus. It’s possible to knick a few hundred dollars worth of rewards this way. Doing so might set back your interest fee or card rates always compare the differences by card type beyond the initial bonuses and costs.
For instance, the Gold AMEX card costs $175 per year while it’s Platinum predecessor runs $450 a year. The difference between the two cards is trivial; cardholders could short out $275 per year and get almost the same results.
Yet, paying the premium might be worth it if you plan to use the card for many years to come due to a few little add-ons. Long story short, always read the fine print!
Conclusion: Which Business Credit Card Do You Need?
All said and done, deciding on the right business credit card is going to take some time. You must first think about the things that define your business’s spending habits.
What do you buy, where do you buy it, and how often do you spend?
How many people will use the card and where will it be used?
There are many questions you could ask yourself. It’s imperative that you take the time to figure out all the answers, and once you do you will know the type of credit card that works best for your particular business.
At that point, it becomes a matter of comparing the specific cards to see which will benefit you the most. This requires looking at all the major features, as well as the little details and fees that the card comes with, to determine which is the ‘full package deal’ based on your needs.