8 Important Things to Keep in Mind Before Choosing a Business Credit Card

Business credit cards can work as a good cash-management tool for businesses, and individuals who run them. 

In fact, 67% of business owners have a business credit card, and 37% of millennial startup founders use business credit cards for startup capital.

Some benefits include: having a clear record of what has been spent on what, simplifying tax preparation, building business credit, applying for loans with ease, and having access to emergency funds in tough financial times.

The downside is that, as with any credit card, if you fall behind with repayments you will end up with an unsustainable, high-interest, debt – and a ruined credit record. Credit cards can be incredibly useful for managing short-term cash flow gaps, but only if your business is tightly and professionally managed.

If you do decide that a business credit card would be useful, then the next step can be the most daunting! There are so many business credit cards floating in the market, that just making sense of which credit card is the best for you can be overwhelming. This brief guide will help you to ask all the right questions. 

Looking for an excellent business credit card right away?

The main factors to look at are the credit limit, credit-free period, usage limitations, and low-interest rate when considering a business credit card. Many cards offer a similar package for those core essentials. Credit cards for particular industries can offer a more specialised service. For example, if you are in the business of eCommerce and media buying then, Juni is an excellent option and it is also a Visa credit card. 

According to Forbes, “Of the four main types of credit cards—Visa, Mastercard, American Express and Discover—Visa is by far the most common, making up 52.8% of cards in circulation.

Business credit cards are a significant investment for any company. So, a thorough understanding of what to consider before choosing one is inevitable. Fret not! We’ve done our research, and dug out 9 essential pointers to remember when you pick a business credit card. 

8 important things to keep in mind before choosing a business credit card

  • Do not confuse it with a personal credit card. 

Business credit cards and personal credit cards are poles apart. 

While a personal credit card is more of an individual responsibility, a business credit card is the financial liability of the company. 

So, if you default on payment, the company, and not you, is liable to pay the debt. But if you have to provide a personal guarantee to take out the business credit card, then your personal credit rating will be affected by a default. 

Personal credit cards do not offer the same amount of credit limit as business credit cards. And the former also doesn’t provide the same level of perks and rewards that the latter does.

  • Consider rewards.

Rewards are an oft-overlooked aspect of business credit cards. 

But the good news is that business credit cards often come with generous rewards; that range from perks like travel miles, cash backs, and solid discounts on business expenses.

Now, depending on your business requirements, you should pick a business credit card that offers the right set of rewards.

For instance, if you are often on the road for business meetings, it makes sense to go for a business credit card that offers travel miles. Similarly, if you want to save on office supplies and other business-related expenses, then it is wiser to opt for a business credit card that offers cashback and discounts.

  • Understand your business needs.

Truth be told, a business credit card is as good as its user. 

Before you zero in on one, Understand why you need one. 

  • Want for business expenses and travel often? Look for a business credit card with travel perks. 
  • Want to manage your business inventory and finances better? Go for a business credit card that offers cashback and purchase protection.
  • Just starting out, and wish to build business credit? Opt for a business credit card with no annual fee. 

Basically, you need to first identify your business needs and then, look for a business credit card tailored to those expenses.

  • Simple application process

The application process for business credit cards is not as simple as that for personal credit cards. There are a few essential documents that you need to submit along with the application form. These include business tax returns, bank statements, and proof of business ownership. So the information you have to provide is more comprehensive. However, some business credit cards like Juni have a less stringent application process. 

  • Not covered by the credit card legislation

Section 75 of the Consumer Credit Act provides protection to credit card holders against breach of contract and misleading claims made by retailers. This is an invaluable piece of legislation that makes it a no-brainer to use a credit card for significant personal purchases.  

However, this protection does not extend to business credit cards. If a deal falls through after you’ve paid through your business credit card you have no government protection. You can of course go through the usual legal channels, just not your credit card provider. You can also limit your liability to fraud by frequently checking your account statements, setting up spending alerts, and not sharing your account details with anyone. And you can reap the benefits of commercial liability, which means that the business is liable for debts, not the cardholder. 

  • Cost of maintenance.

Business credit cards don’t come for free. Unlike personal credit cards, where the annual fees are either nominal or zero, business credit cards entail high(er) annual fees. And this could apply even if you don’t use the card. 

Annual fees can be justified if you need to spend a lot on business expenses because you can take advantage of rewards programs and other perks associated with the card. However, for a small business owner or a solopreneur, then it might not be wise to shell out a couple of hundred pounds on an annual fee, especially when you are tight on cash. For instance, if you are in the business of eCommerce and media buying, then you will want a business credit card with high spending limits and flexible payment plans. On the other hand, if you are a small business owner with a limited customer base, then you will want a card with low-interest rates and a credit-free period. 

  • Anyone can qualify for a business credit card

Do you know that business credit cards are generally available for businesses of shapes and sizes? So, no matter who you are, a freelancer, a solopreneur, or run a big company, or a small or a mid-sized one, you can qualify for a business credit card. 

But it is worth noting that credit card issues do consider your business size and credit status to make the final decision. They are also likely to require personal guarantees and while you are not personally liable for a company credit card, if it is linked to your guarantee the management of the business card can affect your personal credit ratings. 

  • Think long-term

When selecting a business credit card, good advice is to think long-term. Take into account the possible growth of your business. Do you see it growing in the near future? If yes, then opt for a business credit card that comes with diverse and flexible payment terms, together with expandable credit lines. However, to get your business on a more sustainable footing for growth it would be sensible to review with your accountant or financial adviser other financial tools to help your expansion. Credit cards are useful for short-term cash flow management, but for longer-term growth loans, investment and invoice discounting are usually more suitable.  

Do your homework, and choose the right card for your business 

To sum it up, a business credit card is like a business partner that offers credit when your business needs it the most. 

However, you need to do your homework when choosing a business credit card and make sure that it is the right financial tool for your business at the right time. 

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  3. See also: 10 businesses you can start from home, with no money

Disclaimer: This article provides general information and is not a recommendation to act. Please seek independent financial advice before entering into any financial transaction.