Considering a Business Credit Card?

Many established small business owners agree that using a business credit card - rather than a personal credit card - for business purchases makes good financial sense. Business credit cards generally have higher credit limits, allow you to establish good business credit, and can simplify operational management by eliminating the use of your personal accounts. Here's a quick guide on what you need to know when applying for a business credit card.

Look at choosing a business credit card the way you'd look at largepurchase...for example, a car. Before
you make any final decisions on what make and model you're going to buy, you'll want to do your homework. When you're in the market for a business credit card, the same logic applies - be sure to do your research and shop around. As you compare credit card companies and banks, use these tips to help narrow down your choices and find the best card to suit your business.

Annual Fees

Annual fees are often charged for the services of maintaining a business credit card. In addition to comparing these fees among providers, find make sure to find out what's included. Do you simply receive the basic service, or are there any special benefits included with your card? Basically, if you see an annual fee, don't be alarmed - just make sure you're getting the most for your money.

Interest Rates

It's especially important to know what your initial interest rate is and how it may change. Many people don't get into credit trouble because of their purchases; they find themselves in real trouble because they can't afford to pay off the mounting interest on those purchases. Find out what interest rate is offered by each card and what the policy is for increasing your interest rate in the future. Try looking for a card with a cap on interest rate increases so you know you'll be able to afford your card in the future.

Tip: If you're financing a start-up, or you plan to make a lot of large purchases early on, look for a card that gives you a grace period of either low or no interest. Even though your interest rate will generally go up after six months to a year, you'll be able to spend the money you need without paying normal interest during your most costly time.

Rewards Programs

Some business credit cards offer special rewards programs. Receiving cash back, frequent flyer miles, and discounts on business items are all examples of possible rewards for using your card. After you find out what is offered, find out if the rewards are free based on purchase history, included in an annual fee, or if an extra fee is required to take advantage of them.

Tip: Be realistic about how likely your business is to take advantage of rewards programs. If your business requires a lot of travel, it is probably a very good idea to consider the cards with the best frequent flyer rewards. Especially for small businesses, rewards programs can really make a difference on what your card is worth.

Grace Periods

Although it's best to avoid making late payments, it's important to know what the consequences are if you cannot pay on time. Find out if each card offers a grace period for paying your bill and what late fees you'll incur you've
surpassed that time.

Tip: Make purchases and pay your bills on time. Business credit cards allow you to build up a
good reputation by increasing your business credit score. However, if your card is not used cautiously and responsibly,
you could end up doing more damage your score than if you never had the card in
the first place.

Fine Print

With each company you consider, be sure to read all the fine print. This sounds like no-brainer but it's easy to overlook details that may not seem significant at the time. Find out if you'll be required to pay any additional fees, if there is a monthly minimum charge, and what customizations will be allowed for your business.

Related resources:

• Business.gov Guide to Managing Finance

• FTC Guide to Getting Business Credit