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How to Choose the Right Business Credit Card

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’s 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 normal 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 card that has 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’s 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 they 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 a set rate (including interest) to pay a month where as business credit cards can present flexibility with payments. There are business credit cards that are much different than others and have different interest rates, max 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 of the differences in business cards?

Unlike consumer credit cards, business credit card issuers no longer have to tell you about raising interest rates prior to 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: there are some business credit card issuers that automatically comply with the CARD Act such as Bank of America and Capital One are ones that comply with sending a notification 45 days prior to rising the APR.


What are some of the pros and cons of a business credit card?

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


Pros of a business card:

  • Easier 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 difference types of credit (revolving and a set limit). They also can help build a completely 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 of a business card:

  • Fluctuating APR

Because of the CARD Act changes, rates can go up and effect your past charges that are still being paid off. Legally, they do not have to tell you when they are hiking them up and this 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 make a better personal experience. This is simply not the same when it comes to small business credit cards. There are different protection policies when it comes to 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 being able to conveniently take out easily. 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. Since late fees are extremely touchy per card, it is very easy to accidentally overspend and become unaware of how much you owe. This is why choosing a card that allows you to monitor your balance easily, is essential.



What are some types of business cards to look for?

Already established/excellent personal credit:

  • American Express OPEN – Enhanced Business Gold Rewards

The perks: getting three times the points towards rewards and perks. Do you have new equipment to purchase for your business? Spend over $5,000 and you automatically get 5x that in rewards points (that’s right, 25,000 reward points!) This card is great if you already have excellent personal credit. This is because the perks are extremely high for the user and you must be able to pay the minimum every month.

Fair credit:

  • Capitol One “Spark” Business credit card:

The perks: No annual fee and 1% cash back. While the cash back rewards seem minimal, Capital One is one of the few business credit card issuers that comply with the CARD Act as mentioned, meaning they will not randomly and instantly hike up your APR rate. Instead, they will issue a letter to you 45 days prior alerting you.

Overall, there are many things you need to think about when applying for a business card. If you have great credit and are a completely new business, a card may be easy for you to obtain, but if you have a brand new business with only fair credit, you may want to look into a personal credit card for small purchases to build your personal credit as your business gets on its feet. There are plenty of pros and cons, but also plenty of perks if you follow a monthly financial plan to help maintain great credit.

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