Business Credit Cards: What Every Business Owner Should Consider
by Marco Carbajo, Guest Blogger
- Created: November 12, 2013, 10:31 am
Business credit cards are a major source of financing for small business owners in today’s economy. Statistics even show that over 65% of small businesses use credit cards on a frequent basis.
So why have business credit cards become such a popular source of financing?
In a recent survey conducted by the National Small Business Association, “twenty-nine percent of small business owners report having their loans or lines of credit reduced in the last four years and nearly 1 in 10 had their loan or line of credit called in early by the bank.”
Traditional credit lines such as a line of credit from a bank compared to an untraditional credit line in the form of business credit cards have two major differences.
First, the way the minimum payment is calculated with a line of credit from a bank is based on the principal (1.5 – 2% monthly balance) plus interest (prime + 3-5%).
With untraditional lines of credit (business credit cards), your minimum payment is calculated based on the principle (1.5 – 3% monthly balance) plus interest (0% for 6-12 months) depending on the card issuer.
Second, traditional credit lines by a bank are reviewed every two years and can be turned into a term loan for the following reasons:
- Payments not being made on time
- FICO® Scores are lower than when the line of credit was originally approved
- Cash flow changes in the business
With business credit cards, there are no corporate financial reviews every two years and your line of credit can never be turned into a term loan. It’s always revolving and can be subject to credit limit increases as well.
If you're in the marketplace for business credit cards, take into consideration these six vital aspects:
- Cost and Fees – While there is definitely no shortage of card issuers offering no annual fees, if you are considering a card that has fees, look at what the card provides for that fee. Paying for your plastic is an expense you should have justified. If the business credit card provides astonishing benefits such as flexible payment options, added rewards, travel protection, special bonuses, etc., then it may be worthwhile.
- High credit limits – The amount of available credit is crucial to a company’s ability to make sizeable purchases while keeping low debt to credit limit ratios. With high-limit business credit cards, a business is less likely to surpass its credit limits.
- Annual percentage rate (APR) – A zero percent introductory rate can amount to a considerable savings for a company and an excellent method to pay down current credit card debt. Always fully understand the terms and conditions, intro APR period and regular APR rates before applying.
- Perks and Rewards – There are various types of perks and benefits associated with business credit cards. The key is to determine if it fits into your business life. A business credit card that provides discount rates on hotels, resorts, airline tickets and auto rentals can be very beneficial. Yet another factor to consider is just how easy is it to use the incentives being supplied. Put in the time to do your research so you can get the most optimal card for your business.
- Business credit reporting – Unfortunately, not all business credit card issuers report to a major business-credit reporting agency. The best business credit cards should share payment data with a business credit reporting agency such as Corporate Experian. This will allow an owner to establish the creditworthiness of the business.
- Personal and business credit separation – For true separation, the business credit cards obtained should only report to the business credit agencies – not the business owner’s personal credit reports. This protects the business owner’s personal credit scores while enabling the business itself to establish its own unique credit profile.
As your business continues to grow and expand, having access to credit is a must. A business credit card with a high limit, a low annual percentage rate, beneficial rewards and a way to build business credit while protecting personal credit is a card definitely worth having.
About the Author
Marco Carbajo is CEO of the Business Credit Insiders Circle (www.businesscreditblogger.com), a step-by-step business credit building system providing lines of credit, trade credit and funding sources.
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