Small Business Credit Cards

Small Business Credit Cards: The Benefits

• Competitive Interest Rates: Today, many business credit cards offer interest rates that are comparable to or even lower than those of small business loans. Using loans to fund your business purchases could cost considerably more in the long run than making those same purchases with a business credit card.

   

• Balance Transfers: There are many credit card offers available now that include balance transfer options that can save your business money. Freedom from interest charges on balances transferred, even if only for a short period of time, can free up funds that can go toward other business necessities, improving your bottom line.

   

• Added Security: Buying online saves time and money, but it can increase your risk for identity theft. Being able to make purchases without the threat of hackers obtaining vital information like your name and address is always a plus.

   

• Travel Accident Insurance: One attractive feature of business credit cards that you may not have known about is travel insurance. Most business credit cards offer travel accident at no additional charge.

   

• Additional Cards: You can order additional credit cards on your business account for use by your employees.

   

• Track Spending: The vast majority of business credit cards provide itemized spending reports for your records. This makes balancing your books and keeping track of tax deductible items convenient and easy.

   

• Save Money: Making business purchases with your corporate card allows you to avoid the fees that most banks charge for writing business checks This simple savings can quickly add up!

   

• Build Your Business' Credit Rating: Just as you have a personal credit history that affects your ability to acquire credit, your business does, too. When you make the decision to apply for a small business loan or a line of credit, one factor that is taken into account is your business' credit rating. Using a business credit card to make purchases establishes your business' credit history, and if you make payments on time and keep your balance low, your business can earn a great credit rating.

   

• Prestige: Having a corporate credit card just looks good. When you are out with prospective clients, partners, or colleagues, using a business credit card instead of cash can enhance your professional image. People tend to associate business credit cards with corporate executives, so independent contractors and small business owners who pay with business credit cards are perceived as serious, successful professionals instead of freelance moonlighters or struggling entrepreneurs.

There are other fringe benefits to using business credit cards - extended warrantee protection on equipment purchases, discounts on hotels and rental cars, and other discounts for business related expenses.

The only real downside to using business credit cards for purchases is that, as with personal credit cards, if you're not disciplined in your spending, you can easily find yourself spending money that you don't really have and buying things you don't really need, which will quickly put you into serious debt. However, if you maintain the right perspective on credit card usage and business credit, you can keep spending under control. Every time you charge goods or services on your card, think of it as spending cash for those goods and services, remembering that you will essentially have to pay for those purchases with profits. That will help to keep your business spending in check and your business debt at a manageable level.

Also, it's always a good idea to pay attention to the U.S. Prime Rate.The Prime Rate, also known as the Fed, national, or WSJ Prime Rate, is the base or starting rate for most business credit cards with variable rates. Depending on whether the Fed is rising or falling, you may be able to strategically time your credit card application in order to get the most favorable interest rate. If rates are on their way down, you may be able to save money in the long term by applying sooner rather than later. If rates are on their way up, you may want to hold off on applying for credit, since interest rates won't be in your favor for a while. However, if you can pay your balance in full every month, it doesn't matter what the prime rate is because you won't have to pay any interest.

Paying an Annual Fee
Sometimes having a business credit card with an annual fee is not a drawback. Since most business credit cards use "no annual fee" as a selling point, it doesn't seem sensible to go against the grain and get one of the few that do have one. However, if the card's rewards program provides exceptional benefits that you can make good use of, paying an annual fee is often worth it. For example, if you fly a lot on business, the benefit of getting frequent flyer miles on a business card with an annual fee of $60 is well worth it, since they will save you much more than that every year. If you are not likely to take full advantage of a card's rewards program, then you should choose a business credit card that's doesn't charge an annual fee - you should still get some nice rewards that you can use from time to time.

Go For An Unsecured Business Credit Card First!
Obtaining financing can often be difficult for first-time business owners and entrepreneurs, especially when the credit market is plummeting as it is right now. You may think that your only option is to apply for a secured business credit card account. Don't. As long as your personal and business credit histories don't have any serious blemishes, you should try to get an unsecured business credit card before applying for a secured card.

Typically, when you apply for a secured credit card, you use cash a collateral, which will establish your credit limit. So, if you make a collateral deposit of $10,000, your business credit line will be for $10,000. In addition to having to secure the card with cash, you may or may not be paid interest on your collateral deposit, and you will not be able to draw from it, either. The only time you can access the cash you put up is when you close the account.

Unlike a secured card, an unsecured business credit card does not require you to put up any collateral, which is a definite plus. The bank sets your credit limit based on your income, your personal and business credit histories, and other factors like current credit market conditions. If you default, your credit rating will definitely go down, but your personal assets, like houses and cars, will be off limits.

The initial credit limit on an unsecured business card is usually low. However, don't let this discourage you; just be patient and build your company's credit rating by paying all of your business-related bills on time. You will usually get an automatic credit increase in 24 months, and if you don't, you can simply ask for one. In the event that your request is denied or the increase the bank provides is not sufficient, then apply for a new, unsecured business credit card account at another bank. If you decide to apply for 2 or 3 more cards to cover the difference, that's fine, but remember to spread out your applications, applying only every 6 months or so. Spreading out applications keeps you for appearing to be desperate for funds, and it will keep your company's credit rating healthy.

If you apply for one or more unsecured business credit card accounts and your applications are rejected, you can always apply for a secured card as a backup plan. Applications for secured credit cards are only rejected in a minimal number of special circumstances, like if you've recently declared bankruptcy.

In the event that you need to borrow $100,000 or more, business credit cards aren't the best choice - you should apply for a business loan or a business line of credit from a lending institution. However, you will need to be prepared to offer some form of collateral, or to accept a lien on your business and/or personal assets.

American Express offers unsecured business credit lines from $10,000 to $100,000. These lines of credit are especially attractive because the application process is easy, you don't need any collateral, and American Express is a name trusted worldwide.

Once your business has an established credit rating, getting financing will become easier, and you can be approved for larger loans and lines of credit. Furthermore, when your business uses credit long enough to create a history that reflects spending and payment habits, most banks and lending institutions will approve you for credit based on your business credit rating, as opposed to checking both your personal and company histories. It may take up to 10 years to build a solid business credit rating, but in the long run it's worth the time and effort.