Every small business owner uses credit cards — the question you should ask your self is: “Which one should I be using?” Each credit card offers a different value – but all have some things in common. Credit cards can help finance big purchases and they are also a great way for businesses to keep track of expenses and to push off paying, even if it is just for a few weeks. So, where do they differ?
PERSONAL VS. BUSINESS
I generally suggest that business owners and entrepreneurs go with a business credit card for these two reasons:
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Simplifies accounting by keeping personal and business expenditures separate
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There are usually better rewards and perks on a business credit card
INTEREST RATES
If you plan to float a balance on your credit card, then you should make sure you find one with a very low rate. The numbers you should be looking at are the APR (annual percentage rate) and the terms of payment. There are a lot of creative solutions out there to help (and attract) businesses, including a longer grace period to pay (interest free) and rebates for shopping at certain stores, or for paying early.
Side point – Although there are many cards which offer attractive introductory offers – those are often not the best cards for your business unless you are sure you won’t get caught by a jump in rates after the “introductory offer” runs out. Make sure you keep your eye on the “big picture”.
REWARDS AND PERKS
Although rewards and perks are always great, you will often need to pick between getting the best rewards and getting the best APR. If you pay off your balance every month anyway, then APR doesn’t matter and you can focus on the fun stuff. Because your business makes such large purchases, a business credit card can take much more advantage of rewards programs than your personal one. A good rule of thumb is that a reward is only useful if you are going to use it. If your business uses services regularly, it makes sense to find ouot if there is a credit card out there that either offers rewards for it, offers it for rewards or at least has a discount. When in doubt, go with “Cash Back”, since you will always use cash.
Here are some of the options you will see when looking into rewards programs:
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CASH BACK – Some credit cards offer between 1%-5% “cash back” on some purchases (by category or specific store) or even on all purchases.
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FREQUENT FLIER – Frequent flier points aren’t just available from the airline’s credit cards. Be sure to check how many miles you get for each dollar you spend. Also, many cards offer a very generous introductory bonus, after your first purchase, of 10-25,000 miles.
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GIFT CERTIFICATES – Some cards offer perks such as gift certificates for specific retailers or for gasoline. If the certificates are for stores or supplies which you need en mass, then these may be more valuable to you than “cash back” because they often come out to more money.
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INSURANCE – Many cards include luggage insurance and other types of travel insurance for travel purchased with the card. Many more offer car insurance for rental cars rented with the card (saving you from having to pay for extra insurance from the rental agency)
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CONCIERGE – Some higher-class cards offer concierge services, where the customer service department can make arrangements on your behalf.
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DISCOUNTS – Many cards offer discounts on services such as delivery, prescriptions, etc.
The trick is to figure out how much you (or your business) value the different types of rewards. When figuring this out, you may need to sit down with a list of your normal expenditures (a financial statement or old credit card statement) and looking at where you spend your money.
ANNUAL FEES and SMALL PRINT
Some cards have an annual fee, and you need to make sure you remember that when making your decision. In many cases, you will earn back the money in rewards/cash back, but that is not always the case. Some cards also cap rewards and don’t allow you to get more than $500 back each year. If your business spends in the 5-digits over the course of a year, this might really reduce the value of a card.
CREDIT BUREAU REPORTING
If you want to build credit for your business, then you need to make sure you pick a card which reports to one of the major BUSINESS credit bureaus. Many small business cards do not, rather they report to PERSONAL credit bureaus. This not only takes away your opportunity to build credit for your business, but it greatly increases your risk of ruining your personal credit.
OTHER FACTORS
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Cost of extra cards for employees/partners.
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Security controls for employee cards.
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Ease of accounting (some cards have bills formatted in such a way that you can import them into your financial software).
Did I miss something? Leave a comment and let me know.