6 questions to help you pick the right small business credit card
By Dana Dratch
entrepreneurs, a credit card can be a lifeline or a noose.
right credit card used the right way can advance a business. The wrong card in
the wrong hands can sink a business faster than a canoe full of porcupines.
finding a good fit means doing a little research. For entrepreneurs seeking a small business credit card, the
shopping list includes more than just APRs and airline miles -- not that both
aren't important. And shopping as a consumer gives you a good start on what to
ask as a business owner. "The same traditional measures, such as rates, terms,
features and benefits" apply to business cards as well, says Lynnette Khalfani-Cox, author of "Perfect Credit: 7 Steps to a Great Credit
are six questions to ask if you need a card for your small business:
Question 1: Will it work when and
where you need it?
pearl retailer, Jeremy Shepherd travels frequently to Asia and needs a card he
can use on business trips.
issuer behind one of his major bank cards repeatedly allowed only one overseas
charge before cutting off his credit. To get it restored, Shepherd was required
to phone the card's 800 number. "And I couldn't exactly do that from China,"
says Shepherd, founder and CEO of PearlParadise.com Inc.
Why it matters: One reason to have a credit card is to deal with emergencies and large transactions --
times when you can't or don't want to use cash. When you reach for it you need
results, not more problems.
How to find out: Talk to other people who have
the card. Try to find people who will be using it in similar circumstances to
yours (trips abroad, sporadic large business orders, frequent charge-backs,
etc.) What, if any, glitches have they experienced? Did the company correct and
learn from its mistakes?
Some thoughts: In Shepherd's case, it didn't
seem to matter that the issuer knew his business travel patterns and that he
alerted the company to his trips in advance. It repeatedly and consistently shut off his credit midtrip. "I was gun-shy," he says.
solution: get another card, this one affiliated with an airline he frequently uses.
Question 2: Are its rewards truly
rewarding to you?
Why it matters: For consumers, travel miles
conjure visions of lux vacations with sand, sun and umbrella drinks. For
businesses, it means visiting clients, scheduling buying trips and attracting
new revenue without breaking the bank.
How to find out: First, if your business is all
local, consider a business card that gives generous points or cash back instead
of a card with airline miles. Then, regardless of which type of card you're considering, calculate
how much you plan to put on the card every month. How many miles or points will
that buy? What kind of restrictions does the card levy? Do they expire or can
you keep saving them?
you opt for airline rewards, price out the cost of tickets to and from a
frequent destination, just to see how the math works in real life. Can you get
tickets for flights when you want to travel? Or do you seem confined to
inconvenient days and times?
point to remember: Cards can change miles plans at will. Or even cancel them.
So what you sign up for today might not be what you have tomorrow.
Some thoughts: Shepherd signed up for an
airline credit card and uses it regularly for monthly expenses, like shipping.
As a result, "I've got about a million miles now, and I never have to pay for a
ticket," he says.
Question 3: Are there business-related
services and perks?
cards offer perks. And sometimes those products, services or discounts can
equal extra time or money for your business. Some popular ones: travel or
Why it matters: "If you're a small business and
don't have a lot of personnel," some of these services can almost be a way of
getting an extra pair of hands "without having to pay a salary or insurance,"
says Karen Klugh, spokeswoman for the American Financial Services Association.
How to find out: When you talk to the card
company, drill down to find out exactly what the service will do for you. Are
there limitations? What criteria, if any, do you have to meet? What would it
cost you, in time or money, to do the same thing on your own? What, if
anything, are you sacrificing to get the service?
Some thoughts: Shepherd recently signed up for a card known for high balances and heavy
perks. The plus for him: first-class upgrades every time he travels
domestically. He admits that as an individual, very few people could meet the
spending minimums needed to qualify. But for small businesses, which often have
a lot of overhead, "it's not as difficult as you might think," he says.
advice: Don't limit yourself. Investigate all your card options.
Question 4: Will it show up on
the personal credit report?
Why it matters: If you charge a lot for your
business, even if you pay it off in full, that practice could have a negative
impact on your personal credit score. Or, if you have a large credit line for
business and hardly touch it, that could actually help your personal credit.
Either way, this is something you want to know going in and not leave to
chance, says Khalfani-Cox.
How to find out: Talk to the card issuer. Also, examine the application process. Is the
issuer only reviewing your personal credit history and FICO score, or is it also
looking at your business credit (with something like a Paydex score) and your
business's credit history?
Some thoughts: In your decision-making process,
consider how the card reports to the bureaus and whether it will show up on
your personal or business credit. "Think about that as a strategy," says Khalfani-Cox.
Question 5: How does this issuer
treat other entrepreneurs?
Why it matters: For entrepreneurs, it's a role
reversal: this time, you're the customer, and you decide who wins your
business. And, just as it probably is with your own customers, reputation is
How to find out: Visit anywhere that entrepreneurs are hanging out: from civic and small
business clubs to online forums to online comment sections on consumer and
complaint sites. Reach out to friends and associates who run small businesses.
addition, J.D. Power and Associates conducts an annual credit card customer
satisfaction survey. While it doesn't detail specifics about business cards, it
will give you an overall idea of how pleased consumers are with various issuers
Some thoughts: When some card issuers slashed
credit lines across the board for business owners, "they burned their bridges
with entrepreneurs and would-be entrepreneurs," says Khalfani-Cox. "People do
talk and share online," she says.
Question 6: How long is the grace
Why it matters: A credit card can act as a no- or low-interest loan. And the longer the
grace period, the longer you get to keep the interest rate on that loan at zero.
After the grace period, you owe for your balance plus interest.
How to find out: Call the issuer. Be very specific. How much time do you have to pay off
your charges before the issuer assesses interest? By what day and what time
does the company need to have its money before the interest rate kicks in?
Look for a grace period that goes 20 to 25 days, says Jordan Goodman,
co-author of "Master Your Debt" and radio host of the "The Money Answers Show."
"Some of the cards have eliminated grace periods altogether," says
See related: 5 things you should know about business credit scores
Published: November 22, 2010
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