There are many benefits to opening a credit card for your small business. Whether you are interested in getting a credit card for regular spending expenditures, or for capital needs, there is no better time than now to open a credit card. Though there are many benefits of credit cards, only 1 in 10 small business owners are aware of the perks and get paid to spend money on their credit cards. What this means is that if you choose the right credit card, your business is spending money, earning rewards and points, and in turn receiving money back.
It is important to choose a credit card that will benefit your small business. The right company credit card will help you as a business owner in the following ways:
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- Manage online expenses
- Earn rewards and cashback
- Give you access to capital
Continue to read this article if you are interested in how you find a company credit card that best suits your small business. We’ll go over the steps and tricks of how to do so.
1. Improve your Credit Score
Understanding your credit history is important when looking for a credit card for your business. Business credit cards can affect your credit score in different ways because it is considered to be different than your regular, personal credit score. Though they are different, they both indicate your risk as a borrower. Furthermore, your business credit score can affect your personal credit and vice versa. There are four important credit scores business owners should be familiar with and improve on:
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- Personal credit score
- D&B PayDex
- FICO Small Business Score
- Experian Intelliscore
Your business credit score will determine which credit cards you are qualified for, and the interest rate and credit card limit you are eligible for. If you have a poor credit score, it is important you improve your credit score by making payments on time and resolving items on your credit report that are causing its score decrease.
2. Document Three Months’ Worth of Expenses
You may already be keeping a close eye on your expenses as a small business owner. This is something you will want to take an even closer look at when choosing a credit card that is best for your business. Categorize and document your expenses for a quarter to learn about what you spend your money on, and determine which type of credit card would be best for earning rewards based on your expenses. The following categories are business expenses you can consider for the documentation process:
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- Office supplies
- Restaurants
- Gas
- Travel
After you have documented your expenses for a quarter, you will be able to compare credit cards and narrow down which one would be best for you, as they all have different offerings. For example, some credit cards offer travel rewards. After spending a specific amount of money on the credit card, the owner receives travel rewards that may include a paid flight or paid hotel room. This will come in handy for a small business owner who travels a lot. They are still buying what they need to buy for their business while accumulating points that save them money in the end. Alternatively, for a small business owner who owns an online boutique store where travel is minimal, this credit card would be useless, and they might want to look into a credit card that offers rewards tailored to their purchase category.
3. Find a Credit Card that Meets the Needs of Your Business
Finding a credit card that is best for your business can be overwhelming because of the number of credit cards that you are able to choose from. There are so many options, and you may be asking yourself: How do I choose the best credit card for my business? Additionally, there are many other considerations when looking for a credit card for your company. When deciding on a credit card, ensure you are familiar with how they work, why they are different than regular credit cards, and how your business can best benefit from them. Begin by determining the category your business falls under, and what the needs of your business are. Then, consider the following benefits of credit cards:
- 0% APR for starters: Many banks offer business credit cards with little to no interest rates upon opening your credit card account with them. Depending on the card, interest rates may hit 6 months to one year after the credit card was opened.
- The size of your business: A business that has less than 10 employees may want a credit card that offers analytical components, while a larger business may want a credit card that offers employee cards to progress growth.
- Foreign transaction fee: Will you be using this business credit card to travel internationally? If so, consider the foreign transaction fee.
- Credit card types: If you have a poor credit history, you may not be able to open a business credit card. For someone who cannot open a credit card for their business, there is an alternative option known as a secured business card. This card is secured by a security deposit prior to usage, but still functions like a credit card. The secured business card will have lower limits and must be paid in full each month.
- Travel points: As previously mentioned, some credit cards will offer travel rewards that can accumulate to a large amount and completely pay a travel fund so you do not have to. There are many different travel rewards such as miles and transportation points, restaurants and dining out, hotels, rentals, and many more.
- Welcome bonus offer: There are banks that will offer you a bonus for signing up with them, opening a new account, referring a friend, or spending a specific amount within a set amount of time. For example, some banks will offer $200 if you refer a friend and the friend acts upon the referral. Some banks may also offer you $400 if you spend $2,000 within the first 2 months of opening a new credit card with them.
- One card for multiple usages: If you need several cards for employees, but would like for them to have their own account, it is important to look for a credit card that offers this benefit. Be sure to be aware of fees in cases like so.
- Virtual cards: Virtual cards are best for businesses that shop online frequently, or who prefer to hold a virtual card rather than a physical one.
- Regulations: Business credit cards typically have stricter regulations than personal credit cards do. Examples may be changing the interest rate to a higher one, or large fees for late-payments
- Credit bureau reporting: Some credit card businesses will report to some business credit bureaus, while others will not. Determine which credit score service you are targeting and improving, and ensure you open business credit cards that report to the chosen credit score service to increase and improve your score.
There are many factors to consider when deciding which credit card would be best for your business. Pick two factors from the above-mentioned list that are most important to you and go from there.
4. Plan your Spendings
After reviewing what you spend on your business expenses on a quarterly basis, it will be easier for you to decide what kind of card you are looking for and what rewards you are most interested in. If you plan on using your credit card in a specific category, you should open a credit card with beneficial rewards regarding that specific category. If you plan on using it for one large purchase, consider a credit card with rewards that you may use on this purchase.
5. Calculate Annual Fees
There are business credit cards that do not have an annual fee. Opening a credit card that does not have an annual fee may sound enticing because it saves you money. You may think it is saving you and your company money however, a lot of credit cards that offer the best rewards have an annual fee. Depending on your business and its circumstances, it may be worth paying the annual fee because of all of the rewards and benefits you get from the credit card. For example, you open a credit card that does not have an annual fee, but a 3% cashback rewards system or you open a credit card with a $95 fee and 6% cashback. This means if you spend about $3,000 throughout one year, you are earning more rewards than you are paying for the card. Choose a credit card after considering how well it will benefit your company based on its rewards and fees and your expenses. If you do the math and find the annual fee is worth the rewards you will be getting because of how much you spend, the credit card will be providing you with more than you are providing the credit card with.
6. Learn About the Credit Card Rewards Program
The rewards of each credit card will vary depending on the form of the membership, the issuing bank, and sometimes even the month the credit card was opened. Some programs may change their rewards systems yearly, quarterly, or even monthly— offering new and exclusive rewards. There are many different types of business credit card rewards within the industry, so be sure to review the reward program before making a final decision on what credit card would be best for your small business.
Here are some examples of what credit card reward programs may offer:
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- Cash rewards
- Cell phone insurance or replacement
- Hotel coverage
- Exclusive hotel complimentary
- Concierge services
- Discounted streaming subscriptions
- Discounted premium-level subscriptions
- Bonus points on eligible purchases
- Credit score monitoring
- Extended warranties
- Car rentals at a low or no price
- Free or discounted VIP access at events or museums
- Canceled flight insurance
- Lost luggage replacement
- Airport lounge access
The list goes on when referencing what business credit cards offer on their rewards programs. Ultimately it is up to the business owner to determine which credit card would save them money, and help grow their business. Credit cards can be great for both the business and the cardholder as long as they are staying on track with payments and taking advantage of the rewards.
Saving money as a small business owner is key for progress. There are other methods you can utilize that can contribute to your money-saving habits, such as SMS invoicing. As many people are using virtual credit cards as their recommended method of payment, consider taking your business to the next level by incorporating an invoicing system that is easier for both you and your customers/clients, and saves you money.
How do I apply for a Business Credit Card?
Applying for a business credit card is similar to applying for a personal credit card. The process is simple, and you may even be able to apply for a business credit card online. Before applying for a business credit card, make sure you have registered your business. When applying for a business credit card, they will check both your personal and business credit scores. Depending on the credit card, it may be required to provide the company with your business’s income records, and employee identification number (EIN.) After the credit report is run, you will know which credit cards you are eligible for. Upon choosing a credit card, you will be informed about its credit limit and interest rates. Keep in mind that business credit cards will have restrictions on use for mortgage or rent payments, payroll, and certain methods of invoices.
You will need the following information when applying for a business credit card:
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- Legal business name
- Business address and phone number
- EIN
- Age of business
- Personal income
- Annual business revenue
- Date of birth
- Social security number or taxpayer identification number
- Monthly business expenses
- Annual business revenue
- If there are any issues on your credit report, provide your statements of disputes
Depending on your credit score, your business credit card application should be processed within a few hours of submission. Once you are approved, you may use the credit card for your business and earn points, rewards, and cashback.
FAQ
What’s the difference between a business credit card and a personal credit card?
Business credit cards typically have a higher credit limit and more useful, effective rewards. Personal credit cards may have a smaller credit limit and smaller rewards, however, they do have buyer protection rights.
What’s the difference between a Visa and a MasterCard?
Visa and Mastercard’s are both types of credit cards. Sometimes certain stores and shops only accept one or the other when it comes to using a credit card as a method of payment. They may differ in the following areas: how the payment is processed, rewards offerings, the structure of rewards, and interest rates.
When should I get a Credit card for my Business?
The best time to get a credit card is when you are planning on making your first purchase for your business. Open a credit card account prior to making your first purchase as a business owner, so you can begin accumulating points and rewards as soon as possible. A business credit card provides you and your company with these 4 benefits:
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- Protecting your credit score with separate business and personal accounts
- Builds your business’s credit score, if used responsibly
- Can raise capital
- Earn business rewards
Make the most out of your business expenses by opening a credit card and save money while doing so.