If you're a small business owner who's looking for growth capital, one viable source of funding that you may not have considered is a bank credit card. A business credit card can be a valuable revolving line of credit that can increase your company's purchasing power. You'll get the most from a business credit card if you use it for regular monthly expenses, and pay off the balance on the due date of each billing cycle.
One benefit of a business credit card is the relative ease of the application process in comparison to those of other small business loans. If you apply for a credit card where you do your business banking, you may be approved faster and offered a higher credit limit than you would with an independent card issuer. Making regular payments on a credit card also provides a painless way to establish a credit history in your business name, which can help your small enterprise qualify for other types of capital funding when it's needed.
Banks offer a number of credit cards that are designed specifically for small business, and many offer lower interest rates than consumer cards. A number of these cards come with cash-back percentages, travel points or other incentives. When you use your new business credit card to pay as many recurring expenses as possible, your chosen reward can accumulate rapidly.
Paying by credit card instead of writing a business check means less paper work to deal with. You can opt for paperless statements, and then download your transactions directly into your business bookkeeping software. Most business credit card statements give you a breakdown by merchant category, and by individual merchant, so that you can quickly allocate expenses. Your business will also receive a year-end statement that can help with finalizing your records at tax time.
Pros and Perks of a Small Business Credit Card
Many credit cards designed for small business use don't have annual fees or other costs, and using your credit card in effect lets you borrow from the bank, interest-free, for a monthly 21-day grace period. A business credit card can give you a financial cushion that is invaluable if you come up against unforeseen expenses in any given month, and you can take personal advantage of any rewards that accrue. It also gives you a hassle-free means of keeping your personal and business purchases separated.
Potential Cons Associated With a Business Credit Card
One downside of a business credit card is that it doesn't provide the same buyer protections that a consumer card offers, such as dispute resolution. Credit cards also have the highest interest rates of any of your small business funding options. Although the card will be used for your business, your name will be on the application, and you'll be personally liable for the debt. As with any credit card, there can be security and identity theft risks, especially if you plan to give a second card to an employee.
If you're considering completing a business credit card application, a talk with your banker can help you choose a card that matches your financial needs, and one that will aid you in growing your small business successfully.
The Different Types of Bank Credit Cards For Your Small Business
A bank credit card offers small businesses a useful tool to track regular expenses, and a safety net in case of unexpected cash needs. Banks offer a wide array of credit card products aimed specifically at small businesses. As with any other form of small business lending, application approvals and spending limits are based on an individual applicant's credit history. Here are five of the most common types of cards for small business, along with an example of an available option in each category:
Cash-Back Credit Cards
A cash-back card can provide a small business with rebates on their monthly charges. The Bank of America Cash Rewards MasterCard features no annual fee, and a nine-month 0% APR period. It offers tiered cash rebates of 1% back on all purchases; 2% on restaurants; and 3% on purchases at gas stations, computer services, and office supply stores. Normal interest rates will vary between 11.24% and 21.24%. Another perk for card holders is the option to direct deposit rebates into a BOA bank account.
Reward Point Credit Cards
There are a number of business credit cards offering travel reward points that can be used on any airline. You might consider the Capital One Spark Miles Select, which carries no annual fee, and offers an introductory 0% APR for the first nine months; interest rates will then be 14.9%, 17.9% or 19.9%, depending on creditworthiness. Cardholders earn one mile for each dollar spent, along with an annual 50% bonus for earned miles. An additional benefit is that travel miles can be converted to a cash rebate, merchandise or gift cards.
Low Interest Credit Cards
Some small businesses simply require a basic credit card that doesn't include frills and perks, but one that provides a reasonable interest rate in case a balance must be carried from month to month. With credit card interest rates on the rise, this type of card is becoming more difficult to find, but one that qualifies is the Bank of America Platinum Visa Business card. It carries no annual fee, a variable interest rate that could be as low as 9.24%, along with an extended grace period of 25 days.
Prepaid Credit Cards
A prepaid credit card is especially useful for new businesses or those with damaged credit, as a tool to establish a history of timely debt repayment. MasterCard Corporate offers a range of prepaid cards that come with flexibility on the limit a card will carry, and the option of adding cards for employees. These cards come with the same online management tools to track expenditures and assist with budgeting that business credit cards normally provide. With a MasterCard prepaid card, there are no credit approval requirements or interest charged on balances; there is a low monthly maintenance fee, but the card offers online bill pay and easy reloading options.
This type of card isn't technically a "credit" card, which can be beneficial to a small business or startup as it prevents carrying a month-to-month balance and the accompanying interest charges. While the application process is identical to that of a credit card, with a business charge card, spending limits are often lower; the grace period is shorter; the balance must be paid off each month; and the annual fees can be heftier. American Express Open offers the Plum Card, which rewards card holders with a 1.5% discount for paying off a monthly balance within 10 days of billing; the $185 annual fee is waived as a sign-up incentive.
A bank credit or charge card can give your small business access to funds when they're needed most. If used properly, it can be indispensable for handling and monitoring the day-to-day costs of operating, growing and expanding a business.