Not every home business owner has a nicely-padded emergency fund they can pull from if a computer goes on the fritz or a customer is slow to pay. In fact, 82% of small businesses that fail do so because they struggle with cash flow, which can make covering emergency expenses tough.
A business credit card can be the stopgap for temporary cash crunch issues.
Why a Credit Card and Not a Debit Card?
Of course, paying for expenses with available funds is always the financially smartest move, but there are a few reasons to consider credit cards beyond coming to the rescue when you don’t have cash on hand.
Business debit cards actually offer no protection under federal law against fraudulent use (unlike personal debit cards, which do), making your business vulnerable to fraud. Credit cards, on the other hand, offer excellent protection if they are used without your authorization.
And because many business credit cards offer lucrative rewards, like points earned for every purchase that can be redeemed for travel, account credit, and cash back, they’re not always a poor financial choice. In fact, if used strategically, you can more or less get paid to use a card, presuming you pay off your balance in full before interest rate fees kick in!
Let’s next talk about what you need to consider before opening your first business credit card.
What Will You Use It For?
Will you use the card for all business transactions, or only for emergencies? What types of expenses will you charge? Travel? Office supplies? Materials?
Thinking about how you will use the card can guide you to the specific card that’s best for you. Some cards offer more rewards when you purchase in specific categories, like dining or office supplies, so if these are your big expenses, you can rack up points faster.
If you only plan to use your business credit card for emergencies, avoid applying for a card with an annual fee. You likely won’t reap the benefits that this fee gets you, so why pay the expense?
What Kind of Rewards Do You Want?
If you travel frequently for work (or pleasure), a rewards card that lets you redeem points for flights, hotels, or rental cars could help you save on travel expenses.
If you use a particular airline or hotel brand regularly, consider opening a cobranded credit card that increases the points you accrue for purchases with that brand, as well as offers benefits like free checked bags, priority boarding, or hotel room upgrades.
If travel isn’t your thing, you might like getting a card that lets you earn cash back or redeem points for account credit so that you can lower your credit card balance or negate any accrued fees.
Who Needs Access?
Will you be the only cardholder, or do you have employees you want to authorize to use your account as well? Make sure that you fully trust anyone who has access to your company’s credit card, and always review transactions on your monthly statement. Many cards let you set up user controls that limit the amount of purchases employees make, or even the types of places where they can use the card.
Are There Introductory Offers to Take Advantage Of?
Many business credit cards offer appealing introductory promotions like 0% APR for several months, or a large amount of airline miles if you hit the spending threshold within the first few months. These can be wonderful to take advantage of, but also look at the overall details of the card to ensure that, long-term, it’s going to be what you need.
Additional Business Credit Card Tips
Start with one card. Especially if you plan to take advantage of a reward program, using a single card for all your transactions will help you rack up points faster.
Keep an eye out for annual fees. If you do open a card with an annual fee, consider whether you’re getting enough benefits to outweigh the cost. You may have signed up for a travel-branded card to take advantage of its benefits when you were traveling, but if you don’t have any trips planned on that airline coming up, it might not be worth it to continue to pay for the privilege.
Monitor your business credit report. You want your credit card company to report your on-time payments to business credit bureaus, but they might not. Keep an eye on your business credit report to ensure that you’re building credit over time.
Pay your bill in full when you can. Credit cards are meant to get you through a jam, but with what is often a high annual percentage rate, letting your balance build up will cost you more in the long run.
If you want the ability to cover emergency expenses but lack cash on hand, opening a business credit card could be a smart decision.
