We are all familiar with the huge shift away from paper money on the consumer side of the market, but credit cards are becoming an increasingly prevalent part of today’s business world. Many companies now offer a large selection of business-branded cards that offer distinct rewards. Here are a few things to consider to help you sift through all the perks, rewards, and interest rates and find the best one for your needs.
Why use a business focused credit card?
While business credit cards will typically have higher interest rates than typical forms of business financing, there are a few reasons they can be beneficial. For starters, they are far more convenient and provide access to capital on a moments notice. Also, many cards offer lower or no interest rates during an initial grace period, so as long as you pay down all payments in that time frame the higher interest rates are irrelevant.
Having a business credit card also allows you to further separate your business and personal assets. This can be important if your company is ever sued because it provides another layer of separation between your assets and those of your company.
Many cards will also come with comprehensive accounting and bookkeeping features. This will allow you to have a detailed history of all spending on your account as well as have control over company expenditures more easily. They will also allow you to take advantages of certain tax deductions. For example, you may be able to put a capital expenditure on a business credit card in order to deduct the full amount while spreading out payments into the following year.
What to look for in a business credit card?
Many credit card companies will try to lure you to them with flashy rewards and promotions, but this rarely tells the whole story. Two of the least glamorous aspects of credit cards are fees and interest rates and thus you will rarely see them promoted, but they can make or break a card. Thousands of bonus miles and 5% cash back may be great, but not if the card’s annual fee is very high and it has high rates.
As far as rewards go, it is important to examine the earning potential of each card. For example, if a hypothetical business spends $5000 a month on travel, $1000 a month on advertising, $200 a month on shipping, and $500 a month on other expenses. A typical cash back card may offer 1.5% cash back on all purchases; this means that this card will have a monthly earning potential of $100. This sounds great, but certain reward cards may offer more. Many reward cards will offer 2x or even up to 5x the amount of bonus on certain expenses. This means this hypothetical business could receive even more in monthly rewards if they were to find a card that gave bonuses towards your businesses typical expenses. These rewards should then be viewed in context with the cards associated fees and rates. For example, if a card provides an annual earning potential of $2000 but has fees of $950 a year, it would be worse than a card that only provides an annual earning potential of $1500 but has fees of $200.
One of the biggest killers of credit cards are their very high-interest rates. This is very typical of all credit cards. Some may offer a year of interest-free financing in order to entice you, but high-interest rates are simply a part of the business. You should try to pay your balance before these rates hit or you may find your self-paying far more than you intended. Credit cards can be great for your business, but only if they are used correctly.