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Business Credit Cards: What Every Business Owner Should Consider

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Business Credit Cards: What Every Business Owner Should Consider

By Marco Carbajo, Guest Blogger
Published: November 12, 2013

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:

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. 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
Marco Carbajo

Guest Blogger

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for Dun and Bradstreet Credibility Corp, the SBA.gov Community, About.com and All Business.com. His articles and blog; Business Credit Blogger.com, have been featured in 'Fox Small Business','American Express Small Business', 'Business Week', 'The Washington Post', 'The New York Times', 'The San Francisco Tribune',‘Alltop’, and ‘Entrepreneur Connect’.


Creative article . I was enlightened by the details - Does anyone know if my assistant might be able to get a sample IRS 706 form to complete ?
Business owners should also keep in mind that their business is capable of having a credit score of its own. A business credit score is completely different from a personal credit score and is not related to you or your FICO score. In order to build a credit score for your business you must structure your business properly so it can be considered a seperate entity. Then you can begin applying for credit with vendors. Paying back vendors on time can increase your business credit score and neglecting to pay on time can lower your business credit score. There are also a number of steps you can take to improve your odds of qualifying for business credit and build your score rapidly. We offer a FREE business credit building program in which we explain such details and attempt to help business owners get the money the need to grow their business.
Another thing to remember is to try and limit your credit card use. Only use your credit card if you need to and know you can pay it off. If you spend thousands of dollars on a piece of equipment and know that you can never pay it off, don't buy it. Be smart with your money/credit and stay in business for a long time. Cheers.
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
I didn't realize loans and lines of credit were subject to this sort of thing by banks and other financial institutions. I will have to take a longer look at business credit cards. Great article.
Wow business credit cards really seems to be doing extraordinary help towards handling finances in a better manner
Hi Michael, As a startup there are various types of financing you can obtain, with business credit cards being one of them. For example, you can conserve your cash while obtaining products and services your business may need with trade credit. Expenses such as web design, marketing, printing, seo services, etc. can all be obtained using trade credit with terms ranging from net 30 to net 90 days. This short term financing option will also enable your startup to establish trade references which further helps when applying for credit in the future. In addition, startup business credit cards and crowd funding are other popular source of financing for startup companies. To your success! Marco
how would you go about getting business credit for a new start up company?
You can apply to get a business credit card even if you have a new start-up company. The good part about business credit cards is that there's an ease of qualification even for new businesses with no credit. You are, however, going to have a smaller amount available on the card and a higher interest rate than traditional sources, but you can get rewards for the business credit cards, just like a personal credit card.
It depends on your company's structure. One thing that isn't mentioned in this article is that Sole Proprietorships don't get separate "business credit" -- everything you apply for and use is associated with your personal credit rating. So if you've got great personal credit, it's a lot easier to get a card for your company. If not, you may have more difficulty doing so.

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