How to pick, use small business credit cards

How to pick, use small business credit cards

Whether you have already started a small business or plan to start one in the future, the subject of small business credit cards has probably crossed your mind. Very few business owners can survive without some form of credit, even if the bills are paid in full each month.

The first thing to remember about small business credit cards is that they are tools. They are intended exclusively for your business venture so that you can easily keep your personal and professional expenses separated. Keeping this in mind, responsible use of credit should become a top priority.

Finding the perfect small business credit card
The credit card industry is more complicated than ever before, and it is easy to become overwhelmed when trying to choose a small business credit card. Which rewards are best? How high an interest rate is acceptable? Is Visa better than MasterCard?

Your goal when choosing a small business credit card is to find a product that suits your business model. For example, if you know that you'll carry a balance for a period of time, low interest rates should be high on your list of criteria. If, on the other hand, you intend to pay off the balance in each billing cycle, you might focus more on rewards the card will generate.

Robert C. Seiwert of the American Bankers Association (ABA) suggests in his white paper that business owners should compare the costs and benefits of each credit card before choosing. If the costs are higher than the benefits, move on to the next option.

Using your credit effectively
Seiwert and the ABA also point out that many small business owners use their credit cards ineffectively, resulting in confusion and profit loss. When you take out small business credit cards, define their function before you put them to use.

Short-term purchases, for example, are appropriate for small business credit cards. When you fund things like office supplies and business dinners and utility bills with a credit card, you know you will pay them off quickly and the card is therefore an asset.

Larger purchases that will take longer to pay off are inappropriate for small business credit cards in most cases. Things like company vehicles and purchases from vendors might be better suited to a longer-term loan option.

Establishing business credit history
One of the primary functions of small business credit cards, according to the ABA, is to establish a credit history for your business. Depending on the structure of your business, this credit history might or might not be attached to your own personal record, but either way, you want to prove that you are a low risk to potential lenders.

A small business credit card is also an excellent tool for accounting, as it allows you to record purchases in a single place. If you keep in mind these primary goals, it will be easier to manage your small business credit cards more effectively.

Updated: July 16,2023