Small business owner choosing a credit card

Picking the Right Credit Card for Your Business

10+ min read • Jan 01, 2020 • Grant Olsen

Credit cards are one of the most popular forms of small business financing—a key reason why is ease of use. Most entrepreneurs already have one or more credit cards in their wallets, so they’re familiar with how to make purchases with a card and pay off the balance.

Because credit cards are fairly simple to qualify for, they’re excellent for new businesses that haven’t had the time to establish a robust financial record. The streamlined application process takes much less time than you’ll typically experience with a loan.

If you think a credit card is a good option for your business, you’ll first need to decide whether you prefer a personal card or a business card. Some entrepreneurs opt to use their personal cards for business expenses, which is convenient if you already possess a personal card as it eliminates the need to apply for an additional card. Additionally, personal credit cards often provide better consumer protection, lower interest rates, and more lenient fees.

The main drawback of using a personal card for business expenses, however, is that the combined uses make accounting more tedious. For this reason, most small business owners instead apply for a business credit card. By isolating their company spending to a single card, financial tracking becomes much more straightforward and manageable.

“A business credit card can be much more than a convenient way to pay for purchases,” explains credit guru Gerri Detweiler. “These cards can also provide lucrative rewards, superior fraud protection, and smooth out cash flow. According to the Federal Reserve’s 2019 Small Business Credit Survey, 52% of firms with 1 to 499 employees use credit cards on a regular basis.”

Business credit cards offer diverse benefits, including flexible usage rules, generous credit limits, favorable interest rates, and personalized reward programs. As a rule of thumb, paying your complete balance each month is the best way to maximize the benefits of a credit card. Most business credit cards have user-friendly payment portals, and you will have the option to sign up for automatic payments. Each successful payment builds your business’s credit, helping to pave the way for more opportunities when it comes to future financing.

Even with a business credit card, there will be inevitable carryover into your personal finances. Your personal and business finances will always share DNA. And you will likely experience this crossover during the application process.

“While it may be easier to get a business credit card than a business loan, you still must demonstrate the ability to pay off your balance,” says business expert Kaylee Kolditz. “During the application process, the credit card issuer may consider both your business and personal credit scores. If business credit history isn’t established or isn’t good, you may need to make a personal guarantee that if your business can’t pay the bill, you’ll use personal funds to cover it. Even if your business’s credit score is good, some cards may still require your personal guarantee, which can then impact your personal credit score.”

This blending of personal and business finances is hardly unique. You’ll find it’s typical of most forms of small business financing, as lenders want to view your qualifications as holistically as possible.

Choosing the Best Card for Your Needs

If you decide to go with a business credit card rather than a personal card, you’ve already made the first of 2 major decisions. The second stage is selecting the specific card that will complement your business spending, streamline your finances, provide you with affordable cash, and offer rewards that you actually value.

There is no shortage of options. A quick scan of Lendio’s business credit card marketplace reveals multiple cards from American Express, Visa, Bank of America, and Credit One Bank.

“For small businesses struggling to find funding, borrowing against a credit card can be an attractive—if not the only—option,” says Entrepreneur. “Plunging further into credit card debt is a scary proposition, but for many the outcome has been rewarding. If you feel using a credit card to fund all or part of your business is the best option for you, be sure to read the fine print before responding to your next credit card offer in the mail. Understanding the risks before you accept the offer can save you a lot of financial pain in the future.”

So which card is right for you? That answer varies from business to business, as each has unique preferences. Here are 14 elements to consider as you evaluate your options:

  1. Welcome bonus: Many of the best cards offer an introductory benefit for new users. Once approved, you’ll need to fulfill the requirements for these perks. Often, you’ll be required to spend a minimum amount of money in the first few months. As long as you meet the terms, you can receive bonuses such as cash, travel miles, and gift cards.
  2. Ongoing rewards: While a welcome bonus is a one-time thing, rewards can be earned as long as you possess your business card. Scrutinize the details of any rewards program, as they can vary wildly. Make sure the program matches the way your business spends, delivers desirable rewards, and makes it easy to redeem what you’ve earned.
  3. Additional perks: On top of the main rewards programs offered by business cards, look for options that include value-added perks that can help you save money. Examples include price guarantees, insurance coverage for your rental cars, discounts with major retailers, and access to airport lounges. Find a card that provides some of these bonuses and you’ll get an even bigger bang for your buck.
  4. Employee cards: If you want to increase your spending power, consider getting cards for other individuals within your company. The best cards allow you to put spending limits on these cards and make it easy to track transactions. Be aware, however, that some card issuers will charge you for additional cards. You should only get cards for your employees if it makes sense financially.
  5. APR (annual percentage rate): This metric shows how much you will owe when you carry a balance past the payment period. If you pay your card’s balance in full each month, the interest rate won’t matter as much. But carrying a balance is a fact of life for many small business owners. If you’re in this camp, carefully select a card that offers a low rate and generous grace periods before the interest applies. Some cards offer an exceptionally low APR for purchases and balance transfers during the first 12 months, which can help you save money.
  6. Annual fee: Many card issuers charge you a fee each year for the right to use their card. If the benefits are substantial, this arrangement can still be acceptable. Just make sure you’re getting enough in return to offset what you’re paying in fees. Plenty of cards charge no annual fee and still provide great rewards.
  7. Minimum payment: If you’ve accrued a balance, you’ll need to make a payment when your billing cycle rolls around each month. When you pay the amount in full, you’ll be in the clear for another month. If you choose not to pay the entire amount, you’ll at least need to pay the minimum amount required by the card’s terms. This minimum could be a set amount or a percentage of the current balance.
  8. Late fee: When you don’t make a minimum payment by the billing cycle’s deadline, you’ll incur a late fee. If prompt payment is something you struggle with, you’ll want to pay attention to this fee to make sure it won’t hurt too badly.
  9. Expedited payment fee: This fee is the epitome of the “lesser of 2 evils.” If you are staring down the prospect of missing a payment deadline and incurring a late fee, you may want to pay this fee to make sure the transaction occurs as quickly as possible.
  10. Foreign transaction fees: If you plan to make purchases with your business card while traveling internationally, pay close attention to the foreign transaction fees. These fees average 2–3%, but some card issuers try to sneak in higher rates. To avoid this nuisance, try to find a card that never charges you for the right to make purchases while abroad.
  11. Cash advance fee: This factor is important to consider, as it applies to many different scenarios with your card. For example, you could be charged a cash advance fee each time you write out a convenience check associated with your account, leverage your card to get cash, or have a situation where your overdraft protection is activated. Because these card functions can bring on higher-than-normal interest rates, it’s important to know what the fee would be and decide if it fits within your spending style.
  12. Over-the-limit fee: Even the most careful budgeters have been known to occasionally spend more than they’d anticipated. Check into this fee to see how much you’d be charged if you were to charge an expense that exceeded your available credit limit.
  13. Balance transfer fee: If you find yourself in a position where you need to move a balance to your business card from a different card, this fee would likely apply. It might be charged as a flat fee or a percentage of the balance you’re moving.
  14. Returned check/payment fees: Small business owners are often optimistic individuals by nature. Sometimes they make purchases when there isn’t enough money in the account to pay for it. When this happens, you’ll likely be charged a return fee on the transaction.

Acquiring Your Chosen Business Credit Card

Identifying the best card for your unique needs is definitely an accomplishment. But it’s not yet time to rest on your laurels, as you’ll still need to apply for the card and get approved.

While it’s undoubtedly easier to apply for a business credit card than most business loans, the process is still more involved than you would experience with a personal credit card because you’re attaching more to the card than just your own finances—you’re also including your business and all its diverse functions.

The most basic information you’ll include in your application is the legal name of your business. As it will be featured on the front of the card, be sure the name lines up with the way your business is listed everywhere else. For corporations and LLCs, use the name you registered with your state government. Freelancers can simply use their legal names.

Card issuers will also want to know your tax identification number. If you have a partnership or incorporated business, this will be the 9-digit Employer Identification Number. Because freelancers may not have this kind of record from the federal government, they can use their Social Security number.

An important part of the application is the business description. The card issuer will want to know how you’ve structured your company, how long it’s been operating, your employee count, your annual revenue, your monthly spend, and the details of your industry. They’ll also ask for contact information. If you have a standalone office, that’s the address you should provide. If you work from home, use that address.

“Once you’ve applied for a credit card, the issuer performs a hard pull on your credit report to evaluate your creditworthiness,” explains Forbes. “They might look at how much of your available credit you are using, how long you’ve held credit, and if you are good at paying off your balance (or at least keeping it low). They also might check how many credit accounts you’ve recently opened and what type of credit you have received. What a credit card company looks at depends on that company’s approval process.”

While a financial track record is relevant for any kind of small business financing, a credit card is one of the few options that has some leniency—great news for entrepreneurs who are trying to get their businesses off the ground.

If you have a new business and lack a robust transaction history, plan on the card issuer analyzing your personal credit. Remember, your personal and business finances will always be connected. If your personal score is at least 680, you should be a solid candidate for a business card.

For applicants who have lower-than-desired scores, the door isn’t necessarily closed. While a low credit score limits your options, some companies might  still consider you. This is particularly true if you’re seeking a business credit card from a bank where you’re already a customer, as the bank will have a better understanding of your financial habits.

To meet the definition of a business for your card application, you’ll need to prove that you provide goods or services for profit. Of course, being set up to make a profit doesn’t necessarily mean you’re bringing in profit at the time of your application. Perhaps you have a great business idea and need some funds to help launch it. Or maybe you’re in the construction industry and need money to buy materials so you can complete a project and get paid. In both these scenarios, a business credit card could potentially help you get the funding you need before any profit actually comes in.

If you aren’t currently bringing in money, you’ll have the opportunity to explain the situation on the application. Drawing upon research and experience, you should provide an estimate of what you plan to make in the future. Don’t exaggerate this number, as that could be a red flag for those reviewing your application. Instead, be authentic and showcase to them what it is about your business that makes it special.

Getting approved for a business credit card instantly puts cash at your fingertips. The amount you’re qualified for will depend on your finances, as well as the industry in which you operate. The highest credit limits reach $500,000, and you can plan on the money becoming available in as little as a week.

The interest rates on credit cards will also vary based on each applicant’s unique situation. The best rates begin around 8% and can go all the way up to 24%.

On top of the speed and relative ease of the application process, the flexibility of the funds is noteworthy. Loans such as equipment financing, commercial mortgages, and startup loans are targeted for certain uses and have strict parameters. But your business credit card can be used on just about anything in the world that’s related to your business. Examples include updating your office technology, purchasing machinery, expanding your structures, replacing crucial equipment, or bolstering your inventory.

Whatever your needs, a business credit card is like a little safety net in your wallet. Because it’s a revolving form of financing, there’s no need to use it unless it becomes necessary. And once you pay off the prior balance, the full amount is once again ready to go. In the unpredictable world of entrepreneurship, this type of convenience is truly something to be sought after.

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Grant Olsen

Grant Olsen is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV, where his articles have generated more than 6 million page views, and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant is also the author of the book "Rhino Trouble." He has a B.A. in English from Brigham Young University.