A reliable business credit card is essential to growing a new business. Not only can it help you track monthly costs, but it also affords you much-needed buying power while ensuring you’re covered in case of a financial emergency. In some cases, a business credit card can also offer better rewards than a consumer one.
While a business card is obviously important, not all credit cards are created equal. Take the time to do your research and determine the best business credit card for your specific company.
What to Consider when Choosing a Business Credit Card
Today’s business owners have access to a wide variety of business and corporate credit cards, each with its own advantages and drawbacks. If you’ve never owned a business credit card, you may not know that the rules for business cards are different from those for consumer cards.
Business credit cards may not have a cap on late fees the way consumer cards do. Additionally, issuers are often able to raise your interest rates. Read all the fine print ahead of time to avoid unpleasant surprises on your credit card bills down the line. You should also consider the following factors when choosing the ideal card for your business:
Business Credit Cards vs. Charge Cards
Although many of us use the terms interchangeably, a business credit card is actually not the same thing as a charge card. While credit cards allow you to carry a balance (provided the minimum monthly payment is made), charge cards require you to pay off your complete balance each month. If you want to save on interest costs and avoid accumulating debt (but still build your business credit), a charge card may be a good option. On the other hand, a credit card sets a limit on the amount you can spend each month. Additionally, credit cards are less likely than charge cards to require annual fees.
A number of business credit card issuers charge an annual fee in addition to the fee from interest on your purchases. While it’s natural to be attracted to credit cards without annual fees, keep in mind that some cards with fees may also offer better rewards. Additionally, many no-fee cards come with higher interest rates that can hurt you if you don’t pay off your balance each month; if you’re considering a no-fee card, read the fine print to make sure you won’t be subjected to additional fees or charges throughout the year.
APR, or annual percentage rate, refers to the percent of interest you pay in addition to the cost of your purchases if you do not pay off your entire balance. While many business credit cards offer low introductory-rate APRs, these numbers can easily skyrocket after the initial term. Additionally, businesses that make only the minimum payments each month are likely to end up paying more than the advertised APR, as they will also be paying interest on previous interest from past months.
When calculating APR, be sure to factor in all the fees and compounded interest to get the most accurate number. It’s important to note that a low credit score can prevent you from receiving the best possible APR. If you’re concerned about a poor credit score, consider taking steps to improve your business credit before applying for a card.
Many business cards offer rewards based on points that can be used toward common business expenses, such as air travel, gas, restaurants, etc. Some also may offer cash back on purchases in specific categories. While rewards cards are an attractive way of cutting costs, they often feature higher APRs than regular business credit cards. Additionally, a rewards card is more likely to have an annual fee than an ordinary business credit card. If you plan to pay off your monthly balance on a regular basis, and the potential rewards outweigh the annual fees, a rewards card might be a good option.
Best and Worst Credit Cards for Business
Once you’ve assessed your company’s specific needs, you can determine the best and worst credit cards for your business. One business credit card with consistently high scores is Chase Ink Plus, which offers companies 50,000 points when they spend $5,000 in the first 90 days. Additionally, the card rewards users with 2 points for every $1 charged on gas and hotel stays. If your business requires a great deal of ground or air travel, the Chase Ink Plus card might be the right one for you.
Another business credit card with high customer satisfaction is American Express SimplyCash. With 0% APR for 12 months and no annual fees, this card is a great option for small business owners who want to avoid racking up debt while growing their companies.
Of course, not all business credit cards are as user-friendly or transparent in their policies. According to a recent ABC report published October 31, 2012, the U.S. Bank FlexPerks Select Rewards Visa is one of the worst options for businesses due to its low rewards-per-dollar ratio. Furthermore, an article published by CNBC on April 28, 2011, named Wells Fargo, HSBC and U.S. Bank as the worst business credit card issuers for not extending CARD Act protections to business card subscribers*.
A business credit card makes it easy to track expenses and deal with unexpected costs while enabling companies to rack up attractive rewards. However, with the wrong card, it’s easy to rack up debt as well. Do your research before signing up for a card, and avoid borrower’s remorse down the line.
*Note: These sites were last reviewed on January 23, 2014.
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