Imagine what would happen if an opportunity came up that could turn your business around, but you missed out because you couldn't access the needed capital. That scenario is very common among small businesses.
The credit card you choose for your business can mean the difference between success and failure. That's why it is important that you understand exactly what you are getting.
It's easy to default to getting a business credit card from the bank or credit union that you are most familiar with. But unless you have the kind of deep personal friendship with your bank manager that would motivate them to lower your APR or raise your credit limit at a moment's notice, loyalty to your bank might not be the best thing for your business.
At GET.com we have put together the 6 most important things to consider when choosing a credit card for your business:
Credit Card or Charge Card?
This is the first question to ask yourself. Both credit cards and charge cards let you make purchases on credit. The difference is that you will have to pay your charge card back in full every month, but a credit card lets you carry your debt from month to month.
The type of business credit card or charge card that you can apply for will depend on your business's credit score.
If your business breaks even each month and you can square off your accounts without carrying debt, then you probably don't need a credit card. You can then choose the card that gives you the most benefits and purchasing power.
How Much Credit Do You Need?
You need to consider this carefully. Some credit cards have a fixed credit line, but most give you a line of credit based on your credit score and credit history, up to a certain limit.
In both cases your purchasing power will be confined to that credit limit, and it will be difficult to obtain a higher line of credit as your business progresses. An open credit or charge card provides a solution here, because your line of credit will grow with good credit behavior.
As your business develops and you make your payments on time, you will get a higher credit line. You may end up never using that extra credit. But in the fast-moving world of business, it's better to have it and not need it than to need it and not have it.
What Will Credit Cost You?
If you use a charge card, you won't be able to take long-term loans (credit), as you have to pay back your credit in full every month or face harsh penalty fees and rates.
If you plan to use a business credit card to access capital for your business, then check out the card's Annual Percentage Rate (APR). This rate will be a dealmaker or a deal breaker.
The purchase APR is a good guide to help you understand what you can expect to pay, though you will pay more than this simple rate due to compound interest. All credit card issuers are required to show you the APR before you apply for a credit card.
Most business credit cards have average purchase APRs between 10% and 25%. Some business credit cards come with a low introductory APR period for purchases or balance transfers.
Can The APR Change?
Business is built on facts, and it helps to have rates you can count on. But the APR you get with most credit cards is subject to change. First of all, many credit cards come with several APR tiers for businesses with different levels of credit.
For example, if a credit card has 13% - 22% APR for purchases, you could get a 13% APR if you have excellent credit, use your card enough, make payments on time, have a great credit history, and other factors. If your credit behavior doesn't shine quite so bright, you could end up with the highest APR of 22%, or an APR somewhere in between.
The worst thing about this multiple APR tier system is that you may start off with the lowest APR, but if your credit changes your APR can get bumped up to a higher level.
If you are sure that you will always stay on top of your payments, this shouldn't be a problem, and you can get a very low APR in the best case. But if you prefer an APR that you can count on, choose a card that just has one APR for purchases.
An APR can also be fixed or variable. A fixed APR remains the same all the time, so you always know exactly what your APR is. Sadly, fixed APRs are rare, especially on more rewarding cards. Variable APRs change along with the US prime rate. So as the FOMC changes that rate, your rate could go up or down.
What Kind Of Credit Does Your Business Have?
Your business's credit score is based on your business's age, your business's credit history, business assets, cash flow and other factors. The most widely used business credit scores are FICO Small Business Scores (SBSS), which uses a scale of 0-300 to show how creditworthy your business is.
If your business does not have excellent credit, you can apply for a business credit card for poor or fair credit. Applied Bank® Visa® Business Credit Card is an example of a business credit card that you can apply for with bad or fair credit. This card could work if you are starting a new small business and want to make your business payments on a business credit card for easy accounting. Avoid using it to carry a balance as it has a high 23.99% APR and no grace period.
What Benefits Does Your Business Need?
Do you travel a lot on business?
Then a business card with outstanding travel perks can help you save, with perks like complimentary access to airport lounges worldwide, complimentary travel insurance, Airline Fee Credits or Fee Credits for Global Entry or TSA Pre✓TM.
Do you run a transportation-based business?
Then a card that lets you earn cash back or points on gas could help you cut running costs.