It’s no secret that when you are starting a small business, your personal and business finances quickly become intertwined. One area of common confusion is business credit cards. How are they different? Do they have the same protections? How will they affect your personal credit? How do you choose one? In this blog post, we explore these questions and more so you can make an informed decision for your small business.
Business credit cards differ from personal credit cards in two important ways.
- Consumer protections: Business cards do not have the same consumer protections as personal cards. You could face rapidly rising APRs or high fees that are prohibited on personal accounts. Many card issuers do extend these protections to business cards, so do your research and be aware of what protections your card offers.
- Types of rewards: In many cases, business cards offer different types of rewards. For example, discounts on phone bills or office supplies. They often offer enhanced rewards for spending in those specific business categories. This makes it essential that you understand where your small business does the bulk of its spending and choose a card that will reward you for it.
Although business cards differ from personal cards, your personal finances will come into play. This can be a benefit or a burden depending on how you manage your finances. First, to get approved for the card, the lender will generally take both your personal and business (if established) credit into consideration. This means you need to prepare yourself by regularly checking your credit report, paying your bills on time and being intentional about your credit utilization.
On the flip side, once you are approved for the card, the lender will often report to both personal and business credit bureaus. This makes it imperative that you apply the same money management principles to the business card to ensure that it does not negatively affect your personal credit. Knowing the differences is the step one. Step two is to choose a card that fits your needs.
Here are key things to look for as you consider a business credit card:
- APR– the rate you pay for any balance on the card is one of the most important considerations unless you plan to pay in full each month. It will depend on your credit, but the average APR for a business card is currently 13.93%.
- Penalties/fees-read the fine print and understand what fees are associated with the card.
- Payment window-payment terms can differ card to card. Cash flow can be unpredictable in certain businesses so some issuers allow for payment windows that exceed the typical 30 days.
- Rewards– if used correctly, rewards can save you big money. Consider where your spending occurs and look for a card that aligns. Do you fly a lot? Get an airline rewards card. Driving to a lot of meetings? Get a gas rewards card. Use a lot of office supplies? You get the gist.
- Employee cards– not all issuers offer the option for employer cards so if you need them or think you will in the future, ask that question.
Having a business credit card can be a real benefit to the growth and management of your business. The increased capital can allow you to expand and grow. In addition, separating your personal and business expenses can help with accounting and money management. As with everything in small business, the benefits come with a risk. Be diligent about how you use your card and if you find yourself struggling, reach out to an NFCC certified agency who can provide guidance and resources to help you and your small business succeed.
About the author: Natasha Bishop is the Director of Operations and Development at Apprisen, an NFCC member agency helping people improve their financial well-being through counseling, community outreach & financial education.