Benefits such as expanded buying power, spending rewards and tracking assistance can help fuel business growth
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If you’re like many new entrepreneurs, you may still be using your personal credit card for business purposes rather than a business credit card. But convenience often comes at a cost, and you may be missing out on business perks that can hasten your company’s growth.
“A common myth is that only large companies need business credit cards, but benefits like expanded buying power, spending rewards and tracking assistance can help fuel business growth regardless of size or industry,” says Audrey Henley, senior vice president of American Express OPEN.A 2015 American Express survey of small-business owners found that 63 percent of those with fewer than 100 employees reported having a business credit card. Here are some signs that you should consider joining them.
1. Your accounting could use an overhaul.
Chris Van Patten, owner of New York City-based website application developer Van Patten Media, used a personal credit card when he first started his business, but realized he was paying for it at tax time.
“Keeping track of expenses on my personal card and making sure the business was properly reimbursing them had gotten jumbled and confusing, which led to me avoiding it entirely and personally eating the cost on many expenses,” he says.
Switching to a business credit card allowed him to see all of his business purchases in one place and made it easier for him and his accountant to track card spending using business accounting software. Some small businesses may even run into problems with the Internal Revenue Service if they don’t keep business and personal expenses separate.
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2. You have cash flow problems.
Many small-business owners are all too familiar with late payments and other cash flow disruptions.
Since business cards are targeted toward business owners, they tend to offer terms that are specific to that community’s needs. Some may even give business owners longer to pay.
For example, American Express’s Plum Card lets business owners set their own due date, get a 1.5 percent discount when they pay early, and take up to 60 days to pay with no interest added, Henley says.
3. You want to set limits on employee charges.
One of the most overlooked features offered by most small-business cards is the ability to issue employee cards with spend controls and alerts, says Buck Stinson, head of small-business cards at Capital One.
That’s one of the biggest perks of using a small-business credit card for AJ Saleem, the owner of Houston-based tutoring company Suprex Tutors. Three of his eight employees make work-related purchases.
“The ones who have access to credit cards have a $100 monthly spending limit, and I monitor that every cycle,” Saleem says. “If they have a purchase over that amount, I can temporarily raise the limit.”
4. You want to expand your buying power.
Business cards typically offer generous rewards, such as airline travel miles, and business-specific incentives, including savings on office supplies and shipping.
Aaron Udler, president of software training company OfficePro in Gaithersburg, Maryland, looked for a business credit card that would give him the most rewards. Since the company spent a lot of money in office supply stores, he chose a card that offered 5x points on those purchases.
Some small-business owners use business credit cards to make strategic purchases. For instance, according to Stinson, one of Capital One’s Spark Business card customers charges all business expenses and uses the 2 percent cash back rewards and “accumulated enough rewards to buy a new Sprinter van, which is going to directly help grow their business.”
5. You want higher credit limits.
Business cards often carry higher credit limits than personal credit cards since businesses have more expenses than an individual, says Henley. Some even go beyond that.
For example, some American Express business card products, such as the Blue Business Plus and SimplyCash Plus cards, let certain cardholders spend above their credit limits, based on factors such as the card member’s credit history and spending patterns.
6. You want to start building a credit history for your business.
When David Waring, co-founder of New York-based FitSmallBusiness.com, started his first venture, he used a personal credit card that was devoted entirely to business expenses.
While this allowed him to keep things separate, as the business grew larger and he switched from a sole proprietorship to an LLC, he knew he might eventually want to apply for bigger loans and would want a strong business credit profile.
“The business card let me start building credit for the business separate from myself,” he says.
Getting approved for a small-business credit card is much like getting approved for a personal card.
“When you’re ready to apply, expect the card issuer to consider many of the same factors required for consumer cards, including your credit rating, debt amounts, bill payment track record and creditworthiness,” Stinson says. They may also require you to include your business’s tax ID number, standard industry code and legal entity structure.
There is one important thing to remember: A business credit card doesn’t take away your personal responsibility for the debt. Credit card issuers typically have the business owner guarantee the debt, so if you default, the issuer would report it to commercial credit bureaus, which could hurt your credit score, warns small-business adviser Brad Kingsley.
In addition, business and corporate cards are not covered by consumer protections set forth by the Credit CARD Act of 2009, most meaningful perhaps is that issuers can hike card APRs without notice.
“There are many good reasons to split business activities from your personal ones, but understand that quite often the owner is on the hook whether the purchase flowed through a personal card or not,” Kingsley says.