How to Leverage Small Business Credit Cards to Build Your Business

When your small business is in the early stages – from pre-launch through the first two years of operations – credit cards can be an essential financial tool to get your business off the ground. That’s why millions of entrepreneurs turn to small business credit cards to make purchases and weather cash-flow fluctuations. You can also leverage their benefits to grow your business.

In this overview, you’ll learn the basics of small business credit cards: How they differ from personal credit cards, the range of benefits they offer, and how to optimize them as a business-building credit tool.

What is a small business credit card? An essential tool for early-stage financing needs

Just as personal credit cards help with purchases that you may not otherwise be able to afford from savings, business credit cards offer easy and reliable access to credit when you need it. Small business credit cards are available to most businesses, although the rates, credit limits, and terms will vary depending on the issuer and your credit history – including your personal and business credit history, if available.

Depending on the issuer and card, many business credit cards have terrific benefits that can include, but aren’t limited to:

  • Cash back as statement credits or cash/checks for anywhere from 1-5% of purchases
  • Travel rewards in the form of points for future travel, discounts on hotels and rental cars, and coverage of various travel insurances
  • Discounts with key vendors or on select purchases such as gas and office supplies
  • Protection for fraudulent purchases, card theft, or identity theft

Additional key benefits of small business credit cards

While benefits like travel rewards and cash back are great, there are other benefits that can be just as significant to manage your business more efficiently:

  • Many issuers offer itemized reporting. This can make it easier to track and organize records for business analysis, simplify budgeting and financial management, and provide valuable insight into spending patterns.
  • A business credit card can simplify record-keeping for accounting and tax preparation and may even help your accountant maximize tax deductions.
  • You can spot opportunities for savings. For example, as you review your statement each month, you may realize that you can get a better rate if you pay an annual fee for your website hosting instead of a monthly subscription.
  • It can help you address challenges more cost-effectively. If you see that credit card spending goes up around the same time each month, for example, it may be a sign that your business could benefit from a working capital loan to smooth over revenue cycles.
  • You can easily add (or remove) employees who need access to credit. For example, if your staff members travel frequently, each can have a card tied to your business account that makes it easy to track spending, reconcile transactions, and rack up bonuses in the form of travel rewards and/or cash back.
  • Paying a business credit card bill on time can help you build a strong business credit profile, which can be beneficial for securing larger loans or lines of credit and negotiating better terms with suppliers.

How to choose the right small business credit card

You always want to get the card with the best overall terms (including annual fees and interest rates) and rewards that are valuable to your business. If you and your staff don’t travel for business, then applying for a card with travel points won’t help you, but a card that offers cash back on purchases could.

You also want to consider the full picture of a credit card’s terms. If your business is very small and you don’t anticipate spending more than a few thousand dollars a year on your card, is it worth it to pay an annual fee of several hundred dollars? Maybe not! In this case, finding a card with no annual fee and a lower interest rate would be a better fit.

Key considerations for the most benefit include:

  • Interest rates and fees: Look at the annual percentage rate (APR)  for purchases, cash advances, and balance transfers. Also, be aware of any annual fees, late payment fees, and foreign transaction fees to minimize expenses for your business.
  • Rewards and incentives: Evaluate the rewards programs offered by different cards. Some offer cash back on purchases, while others accumulate points with each purchase that can be redeemed for travel, merchandise, or gift cards. Consider which rewards align with your business spending and offer the most value.
  • Credit limit: Your business credit card’s limit should match your business’s needs. A higher credit limit can provide more flexibility for larger purchases or unexpected expenses but be mindful of the potential for increasing your higher-cost debt.
  • Introductory offers: Many cards offer introductory rates and bonuses, such as 0% APR for the first several months or bonus points for spending a certain amount within a specific period. These offers can provide significant savings or rewards, but it’s important to also ensure that a card is still beneficial after the introductory period.
  • Ease of use and management: Consider how easy it is to manage the account online, track spending, make payments, add users, and access customer service.
  • Security: Security features such as fraud protection, alerts for unusual activity, and the ability to freeze a card if it’s lost or stolen can provide peace of mind and protect your business from unauthorized transactions.

As with any credit card, as you use it, your goal should be to pay off the entire balance each month. Short of that, pay as much as you can above the minimum due. That way, more of your payment will go toward paying down the balance, rather than to interest that’s continuously accruing. This is essential as you build your business’s credit profile.

Which is better for your business: A credit card or a line of credit?

You may be wondering if a credit card is best for your business or if you should seek a line of credit instead. The simple answer is that a business line of credit and a business credit card can each be beneficial for your business – although both are credit tools, each offers some different financial benefits:

  • A business line of credit usually comes with a higher credit limit and a lower interest rate than a credit card. It also provides access to a pool of funds that can be drawn upon as needed, which can make it better for managing cash flow challenges and for financing larger projects. If your business has recurring expenses that require funds in advance, such as ordering inventory, covering contract expenses, or adding staff, a business line of credit can be a great option.
  • A small business credit card is convenient for everyday purchases, ease of use for online transactions and smaller expenses, and to give many users to access credit. Generally, though, they include higher interest rates than lines of credit.

How to apply for a small business credit card

Information about small business credit cards is easy to find online.

When you apply, be prepared to provide basic business information, such as your business’s revenue and your IRS-generated employee-identification number (EIN). Also, keep in mind that your personal credit history will likely be an important factor for approval, as well as the terms and credit limit that you’re offered. As with business loans, if you’re planning to apply for a business card, ensure that your personal credit history is as strong as you can make it.

Small business credit cards: FAQs

1) How are business credit cards different than personal credit cards?

First off, a business credit card is solely for business use, just as your personal cards should only be used for personal purchases. Keeping these separate is important for tax purposes and record keeping. Business credit cards also offer features and rewards tailored to business expenses, with higher credit limits and the ability to issue employee cards with customized spending limits. For example, if your account’s total limit is $10,000, you may have a handful of employees who each have cards with limits up to $500 or $1,000.

Additionally, using a business credit card helps build your business’s credit history, separate from and in addition to your personal history. This can be beneficial as your business grows and you apply for loans and lines of credit.

2) Can I get a business credit card if my business is new or I have bad credit?

Yes, although your options may be limited. Some issuers offer cards specifically for new businesses or those with less-than-perfect credit that have lower credit limits or higher initial interest rates. Secured business credit cards, which require a cash security deposit, are also an option for building credit.

3) Do business credit cards impact my personal credit score?

It depends on the card issuer’s policy. Some issuers report business card activity to consumer credit bureaus, which means it could impact your personal credit score, especially if you miss payments. However, many issuers only report if there are delinquencies.

Pursuit’s small business loans can be an important part of your financing

As you’re reviewing small business credit card options, keep in mind that depending on your needs and goals, a small business loan with beneficial terms may also be an important component of your financing. Pursuit has more than 15 loan options and a line of credit that are specifically tailored to meet the needs of new and growing small businesses, including SBA loans and our programs.

Take a look, then contact us to learn more about how we can help you build the business of your dreams.

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