How to Choose The Right Business Credit Card

Last Update: February 11, 2021 • Credit Cards •

Your business has been gaining popularity lately, and you’ve been getting more credit card offers than ever. You’ve heard the term “business credit card” thrown around but didn’t understand why you would need one. If you’re looking into the possibility of obtaining one, you’ve found the right guide. Learn all about what it is, how to obtain one, as well as the pros and cons.

What is a Business Credit Card?

Business credit cards are designed to help you with cash advances. When you obtain a business credit card, you’re able to have easy access with a set limit on how much you can take out. Much like a regular credit card, you will be charged interest during each billing period if the balance is not completely paid for. Business cards often use “revolving credit” as a way to provide money to your business. If you obtain a “line of credit,” this does not use a revolving credit method, and you do not have access to more or less money each month. You have access to a set limit each month.

What is Revolving Credit?

Revolving credit is where you pay something called a “commitment fee” to use the funds you plan on taking at some point. For example, this is often done when the business needs new equipment or an emergency comes up. It is called “revolving” because it can change every month depending on what the business needs and is looking to buy.

What’s the Difference Between Consumer and Business Credit Cards?

Unlike consumer cards, business credit cards can present more accessible payback options. With a consumer credit card, you typically have an exact monthly fee. There are business credit cards that are much different than others and have different interest rates, time frames for payback, unlimited late fees, rewards, etc. Reading the fine print is just as essential as choosing the right location for your business.

What Are Some Differences between Business Credit Cards?

Unlike consumer credit cards, business credit card issuers no longer have to tell you about raising interest rates before doing so. Thanks to the CARD Act, your personal credit card company has to tell you over a month in advance if they’re raising your APR. Unfortunately, this is not the same for business credit cards of any kind. Issuers of business credit cards have the right to hike up your APR instantly and applying these rates to your existing balance. This is why it’s extremely important to read the fine print.

But good news: some business credit card issuers automatically comply with the CARD Act, such as Bank of America and Capital One, which comply with sending a notification 45 days before raising the APR.

Pros and Cons of Business Credit Cards?

With anything financial, there are pros and cons to taking the next step. There are pros and cons to obtaining and maintaining them proactively because there is a difference between consumer and business credit cards.

Pros:

Easy to obtain

If you have a personal credit history that isn’t the greatest, it may be easier for you to obtain a business credit card, as they use two different types of credit (revolving and a set limit). They also can help build an entirely new credit score for the business itself, rather than the owner’s personal credit.

Rewards and perks

Credit cards often give a cash-back incentive, so you’ll use the card for finances. In return, a percentage is built up after each month that you can use towards travel miles, payments towards your next bill, and more. Perks and rewards can help you in the future when traveling, needing money for the next payment, and more.

Built credit

When you pay your bill on time, it goes as a positive mark on your business’ credit report. When this happens, you are more likely in the future to have a grab at a lower APR, a better loan in the future from banks, and even a higher revolving credit line or line of credit.

Cons:

Fluctuating APR

Because of the CARD Act changes, rates can go up and affect your past charges that are still being paid off. Legally, they do not have to tell you when they are hiking them up, which can catch a small business off-guard.

Different types of protection

For consumer cards, if there is a billing issue, issuers will often work with you during disputes on charges to better personal experience. This is not the same when it comes to small business credit cards. There are different protection policies for business credit cards, and it’s extremely important to look at these methods when applying and using a business credit card.

Expensive

Because the pros are great for small businesses, there are some drawbacks to conveniently taking out quickly. The interest rates for business cards versus consumer cards can be much higher. This can be upwards of 3%-5% higher. If you have a remaining balance each month, this percentage can cause your fees and monthly payment to reach higher and higher.