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Whether you're a sole proprietor or the owner of a company with hundreds of employees, business credit cards can provide a source of quick capital and ease the process of managing business transactions. While the specific features of every business card are different, here's what you need to know about this $300 billion industry to determine if a business credit card is right for you.
1. Eligibility is based on personal and business credit history. When determining whether to approve you for a business credit card, as well as what terms to qualify you for, issuers look at both your personal and business credit history. While responsible past use of credit will impact your chances the most, make sure the personal credit bureaus Experian, TransUnion and Equifax have accurate information, as well as the business bureaus such as Dun & Bradstreet and the Small Business Financial Exchange. Card issuers may also be swayed in your favor if your business' licenses and insurance policies are up to date, showing that you're running a legitimate enterprise.
2. You may or may not be personally liable for debts. Liability differs depending on if the card offers ‘commercial liability' or ‘joint and several' liability. The former means your business is liable for all debts, whereas the latter means both the individual and the business are responsible, according to Rosa M. Alfonso, a spokeswoman for American Express OPEN, the division of the company that caters to small business owners. Know your rights and responsibilities before signing on the dotted line.
3. Business cards often command higher credit limits. The credit limit for business cards is likely to be higher than it would be for a personal card because "we know that small business owners charge a lot more than consumers do," says Alfonso. In fact, according to Kyle W. Kempf, senior director of government affairs for the National Small Business Association, a Washington, D.C.-based advocate for small businesses, 13 percent of business owners carry a balance of more than $25,000 and 36 percent of business owners carry a balance of more than $10,000. Many business credit cards do not carry spending limits at all, though such cards tend to carry annual fees, according to the American Bankers Association.
4. Cards can be issued to employers and employees. Multiple cards can be issued under the same account to be used by different employees. Such cards can have customizable user privileges attached so business owners can determine how much credit individual employees have access to and where they can make purchases.
5. Payment terms can be tailored for businesses. Recognizing that cashflow isn't always predictable for businesses, card issuers often offer business-friendly payment terms, such as discounts for paying a balance early or the option of deferring payments if cashflow is slow. Payment terms also vary depending upon the type of card. For example, balances on business charge cards are typically due in 30 days, while balances on business credit cards aren't due as long as a minimum payment is paid. Some cards also offer an extended payment option, which lets business owners finance large purchases over a period of time with different terms than those used for routine purchases.
6. Business cards ease the accounting process. Commercial credit cards help business owners separate their personal expenses from their business expenses -- a must-do if they want to avoid problems with the Internal Revenue Service, says Randy J. Elder, a certified public accountant in Phoenix. Monthly credit card statements help business owners track spending, while some cards provide detailed analysis to help business owners plan future expenditures.
7. Rewards can make business spending pay off. Whether your business spends money on travel, entertaining or office supplies, you can likely find a card with a rewards program that lets you rack up points to go toward these purchases when you use it. Some card issuers have agreements with other companies giving cardholders discounts on certain business-related products and services.
See related: Used wisely, small business cards can keep business afloat, Small business credit cards help balance capital needs, 5 ways to avoid being stung by business credit cards, Business credit scores: What they are, how to boost yours, How to keep a small business credit limit from being cut, Small business credit card comparison chart