How to Choose the Right Small Business Credit Card
You might think that all credit cards are the same but they are not. Small business credit cards are designed for small businesses – the clue is in the name – and they come with different features, terms, benefits, fees and interest rates. By using your personal credit card, you could – depending on your spending habits and personal circumstances – be paying more for the same products. And let’s not even get into how you will show spend from a personal account in your business tax returns.
With all of this circulating around your head you are probably starting to think, ‘how do I choose the right card for my business?’ Thankfully, we are here to help and by following our 6 steps you should be able to narrow down from the wide range of small business credit cards available which one is right for you.
1. Know what you need
What are your reasons behind making business purchases using a credit card? Is it to ease cash-flow, make a one-off purchase or to better monitor and control your business expenses? Your plastic friend will not help you solve all the financial problems your business encounters, but it can provide your business with the flexibility it needs.
Signing up for a business credit card is a big commitment, as you may be acting as a personal guarantor on it. It is also worth considering that there may be other financial products or routes open to you instead.
2. Types of credit cards
Corporate credit cards, special interest credit cards, charge cards, credit repair cards or reward cards. Which one do you go for? The choice can be overwhelming but don’t fall for the marketing name, the push from the sales clerk – who is probably on commission – or the ones with the best business credit card offers. The type you choose should be based on your business needs and individual circumstances.
Talking to an independent advisor or your accountant would be our recommendation as there are benefits and drawbacks to each type. There is no ‘one-size-fits-all’ business credit card and the needs of your business are as unique as you are.
3. Study the fees
How much will the credit card cost your business? Primarily, this cost is made up of annual fees and interest rates – not including any penalty or late payment fees. You should be able to calculate what your annual costs will be and see whether the card offers good value for money.
In some cases, you might be able to offset some of these fees in your business expenses but it shouldn’t be assumed that you will be able to.
Try to look past any introductory business credit card offers and read the small print to discover if you are tying yourself into a long-term business relationship.
4. Know your credit score
Check your credit score before you start applying for small business credit cards. Although doing a credit score check will leave a footprint on your credit report, it is well worth it as some credit cards will only be available to people and businesses with certain credit scores. Applying for such a card and being refused is not only a waste of time but it could, potentially, leave a bigger imprint on your credit report.
An advantage of having a separate credit card for your business is that in the long run, you can begin to separate out your personal and business credit scores. This means that should one side fall into difficulty it won’t necessarily impact the other.
5. Examine your business spend
What type of spending limits do you need and where does your business expenditure go? The reason that business spend is important is that different credit cards offer different cash-back rewards on different spend.
If telephony services make up a big part of your expenditure, then it would make sense to choose a credit card provider that offers cash-back rewards on your telephony bill. There will, undoubtedly, be limits on how much you can claim back but your small business credit card should be looked at as part of your overall financial strategy.
6. Choose rewards based on business activity
Similar to business spend, look at your business activities and identify credit cards that offer rewards which might be of added value to you. If you take business trips, can air miles be collected when paid for with a credit card? Does the annual fee include benefits such as breakdown cover or travel insurance?
You do not want to change your behavior based on where or how you can collect reward points but if you will be carrying out certain business activities then it makes sense to choose a small business credit card that offers related rewards.
With many business credit card options available to small businesses, choosing the right one can be difficult. Have tips for choosing the right business credit card? Let us know in the comment section below.
Editor’s Note: Any opinions featured in this post belong to the author, and have not been reviewed or approved by any of the entities mentioned.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.