What Should I Look for When Selecting a Business Credit Card?

 Selecting the right business credit card is an important financial decision that can have a significant impact on the financial health and efficiency of your business. A good business credit card can help streamline your business’s cash flow, provide valuable rewards, and even improve your credit score. However, with so many options on the market, it’s crucial to evaluate the key features that best match your company’s needs. This article will guide you through the key factors to consider when choosing a business credit card.

1. Rewards Program

One of the biggest advantages of using a business credit card is the ability to earn rewards, whether in the form of cash back, points, or miles. Business credit card rewards programs can be a great way to offset business expenses. When considering a rewards program, evaluate the following:

A. Cash Back Rewards

A cash back rewards card is one of the simplest and most straightforward options. This type of program allows you to earn a percentage of your purchases back as cash, which you can use to reduce your balance or apply to business expenses.

• Best for businesses that want simplicity: Cash back rewards are easy to redeem and typically don't require much effort to understand.

• Percentage Rates: Be sure to compare the cashback percentage across different categories. Some cards may offer higher cash back for specific categories such as office supplies, travel, or online advertising.

• Sign-Up Bonuses: Many cash back cards offer lucrative sign-up bonuses, where you can earn a large percentage of your spending back after hitting a specific spending threshold.

B. Travel Rewards

If your business involves frequent travel, a travel rewards card can be particularly valuable. These cards typically earn points or miles for every dollar you spend, which can later be redeemed for flights, hotel stays, rental cars, and other travel-related expenses.

• Ideal for businesses that frequently travel: Business owners who regularly attend conferences, client meetings, or business trips will benefit most from a travel rewards card.

• Travel Perks: Some travel cards come with additional perks like airport lounge access, travel insurance, and priority boarding. These benefits can save you time and money on business trips.

• Points Redemption: Look for a rewards card with flexible redemption options and a low points-to-value ratio. A good travel rewards card should offer high-value redemptions for flights and hotel stays.

C. Points-Based Rewards

Points-based rewards programs allow you to accumulate points for your spending, which can then be redeemed for merchandise, gift cards, or even statement credits. This option offers more flexibility than cash back but may require a bit more effort in terms of redemption.

• Best for businesses that want variety: You can redeem your points for a wide range of goods and services, making it an attractive option for businesses that don't always use cash back or travel-related rewards.

• Redemption Flexibility: Points often come with redemption tiers and bonuses. Some business credit cards allow you to transfer your points to airline and hotel loyalty programs, which can significantly increase their value.

2. Interest Rates and APR (Annual Percentage Rate)

The APR on a business credit card is a critical factor to consider because it determines the cost of carrying a balance. Interest rates can vary significantly depending on the card and your creditworthiness. Here's what to look for:

A. Purchase APR

This is the interest rate charged on purchases that are carried over beyond the payment due date. If you tend to carry a balance, a lower purchase APR will save you money in interest payments.

• Compare rates: Look for a card with a low or competitive APR, particularly if your business plans to carry a balance. Many cards offer introductory 0% APR for a set period (usually 12-18 months), which can be helpful for financing large purchases or getting a bit more time to pay off your balance.

• Fixed vs. Variable Rates: Fixed APRs stay the same, while variable APRs fluctuate with market conditions. If you prefer predictability, a fixed APR might be a better option.

B. Cash Advance APR

A cash advance is when you withdraw money from your credit card, either at an ATM or through a bank withdrawal. Cash advances typically come with higher interest rates and fees compared to regular purchases, so it’s crucial to be aware of the rate.

• Avoid cash advances: If your business requires access to cash, consider alternatives like business lines of credit or short-term loans. Cash advances on credit cards should generally be avoided due to high fees and interest rates.

3. Fees

Business credit cards often come with various fees. While some cards come with an annual fee, others may charge fees for foreign transactions, balance transfers, or late payments. Here's a breakdown of the common fees:

A. Annual Fee

Some business credit cards charge an annual fee, which may be higher for cards with more rewards or perks. When evaluating a card with an annual fee, consider:

• Value of Rewards vs. Annual Fee: Make sure that the rewards or perks you earn outweigh the annual fee. For example, if you’re paying a $95 annual fee, ensure that your rewards can make up for the cost.

• Waivers and Discounts: Some cards waive the annual fee for the first year or provide discounts for spending a certain amount. Take advantage of these offers when available.

B. Foreign Transaction Fees

If your business requires international transactions, choose a card with no foreign transaction fees. Some cards charge up to 3% for purchases made abroad, which can add up quickly if you travel often or make international purchases.

C. Balance Transfer Fees

If you plan to transfer a balance from another credit card, look for cards that offer low or no balance transfer fees. These fees usually range from 3-5%, which can quickly negate any savings from transferring a high-interest balance.

D. Late Payment Fees

Many business credit cards charge a late payment fee if you miss the payment due date. These fees can range from $25 to $40, so it’s important to pay your bill on time. Some cards may also increase your APR after a late payment, which can significantly increase the cost of carrying a balance.

4. Credit Limit

The credit limit on your business credit card is the maximum amount you can charge to the card before reaching your limit. When applying for a business credit card, consider:

A. How Much Credit Do You Need?

Your business’s spending habits and cash flow will dictate the credit limit you need. If your business has high expenses or operates in industries where large purchases are common, you may need a higher credit limit.

B. Potential for Credit Limit Increases

Some business credit cards allow you to request a credit limit increase after a period of responsible use. Make sure the card you choose offers the potential for a higher limit as your business grows.

C. Credit Utilization Ratio

It’s important to maintain a low credit utilization ratio (the amount of credit used compared to the total credit limit) to improve your credit score. A higher credit limit can help keep your utilization ratio lower, which can be beneficial for your credit score.

5. Credit Requirements

Before applying for a business credit card, consider the credit requirements of the card issuer. Some cards are only available to businesses with a high credit score, while others may offer more lenient approval criteria.

A. Personal Credit vs. Business Credit

In some cases, credit card issuers may look at the personal credit score of the business owner when approving a business credit card application. Other times, they may look primarily at the business’s credit profile, if it exists.

B. Business Type and Size

Some cards may be better suited for small businesses, while others are designed for larger enterprises. If you’re a startup or small business, consider cards that cater to businesses of your size and revenue level.

6. Additional Benefits and Perks

Many business credit cards come with additional benefits and perks that can add value to your business. These can include:

A. Purchase Protection and Extended Warranties

Some cards offer purchase protection, meaning you can get a refund or replacement if an item you purchase is damaged or stolen. Others offer extended warranties on products purchased with the card, which can be a valuable perk for businesses that make significant purchases of equipment or supplies.

B. Employee Cards

If you have employees who make business-related purchases, look for a card that allows you to issue employee cards. Many cards offer no extra fees for additional cards, and you can earn rewards from their spending as well.

C. Travel Perks

Some business credit cards offer travel benefits such as airport lounge access, concierge services, priority boarding, and travel insurance. These perks can save your business time and money, especially if you have employees who travel frequently.

7. Customer Service and Support

Consider the customer service reputation of the credit card issuer. A responsive, helpful customer service team is crucial, especially if you run into issues with fraud, lost cards, or billing disputes. Look for credit card issuers that offer 24/7 customer support, either through phone or online channels.

Conclusion

Selecting the right business credit card is essential for managing your business’s finances effectively. You should take into account factors such as the rewards program, fees, interest rates, credit limit, and additional perks to choose a card that suits your company’s needs. By considering all the factors listed above and understanding your business’s unique financial situation, you can select a business credit card that helps your business grow, manage expenses efficiently, and earn valuable rewards.