The Small Business Guide to Using Credit Cards

Estimated read time: 7 minutes

If you're a small business owner with questions about opening a line of revolving credit for your business, you’re in the right place! This guide to credit cards for small businesses will help you understand all the factors to consider when seeking credit for your business.

In the following article, you'll learn how to decide which credit card to apply for, and how to get the most benefit from using a credit card without putting your business at risk. Because we understand you’re a busy person, for your convenience the content is broken down into four informative parts that answer the following questions:

  • Why or why not have a business credit card?
  • If approved, what types of terms and features can I expect?
  • How does credit score affect my ability to seek business credit?
  • How can I use business credit wisely?

Without further adieu, keep reading for your guide to credit cards for small business:

Why Does My Business Need a Credit Card?

If you're asking this question, you've probably already considered what having a credit card can enable you to do. For instance, a credit card will allow you to start building corporate credit, which can lead to more funding opportunities later.

A small business credit card can help you make capital expenditures for your business before you have credit history built up to seek funding for such purchases. When used responsibly, revolving credit can give small businesses the flexibility they need to grow.

The key words in that sentence are “when used responsibly.” There are certainly times you may want to hold off on making a request for revolving credit. Here’s a few examples:
  • You’re trying to solve a budget shortfall: other financial strategies offer better options than increasing your debt portfolio.
  • Your business is not profitable: you should avoid using debt to pay debt.
  • You don’t have a business use-case: if you can’t think of a strategic use for revolving credit, pump the breaks.

Think of a credit card as a strategic tool that should be carefully considered and then chosen based on clear need and benefits.

What’s Typical?: Terms and Features Edition

If you’re here, you probably want to know what are typical terms and features that you can expect from a small business credit card. Here’s some things to keep an eye out for when reading the small print:

Long-Term APR

APR literally means annual percentage rate. And it refers to a charge that is applied to your card at the end of each year. The exact APR you get with a credit card varies depending on your credit score and the what you're applying for. Not all cards are created equal.

For our purposes, we'll define "long term" to be time scales longer than one year, because many credit cards for small business offer reduced APR during the first year. Often, the introductory APR can be very low to entice consumers, when the reality of long term APR is much higher.

When it comes to APR, there's one huge catch. Your credit card issuer can change the APR of your credit card, but they must give you 45 days' notice to do so. If a credit issuer decides to raise rates, there isn’t much a business consumer can do. It happens!

Your best course of action in those situations is to try to pay the remaining balance as quickly as possible. Long-term APR tends to rise far more easily than it falls, but if you pay your balance every month, it won’t affect you.

Short Term APR

Short-term APR is also an important consideration. As mentioned, many creditors offer competitive introductory APR. But you should still get in the habit of paying your balance off each month.

Signing up for the right credit card with low or no introductory APR, can allow you to buy things you need to build your business with low risk of additional percentage fees for a short time. But take a step back and remember, once the introductory APR is up, you'll be on the hook for any unpaid balance, plus new purchases, interest and long term APR.

Annual Fees

A stark difference between opening a line of personal credit versus business credit, is annual fees. Most personal credit cards don’t require annual fees. However, most business cards include fees in addition to APR. In most cases, fees are less than $100.

For most small businesses, the fee structure is low enough not to dissuade them. But if you're interested in pinching every penny, you can easily calculate whether the projected rewards of a card are worth the annual fee.

Other Fees

Some cards come with additional fees which may or may not be detrimental for your business. These typically include foreign transaction fees or those accumulated for underutilization. Make sure to read the fine print before signing up for a business credit card.

Signup Bonuses, Card Rewards and Other Perks

Many business credit cards will offer you substantial bonuses just to sign up.

These bonuses are typically:

  • Card reward points
  • Other business reward points
  • Cash bonuses
  • Gift cards
  • Discounts
  • Frequent flier miles
  • Other one-off perks

As tempting as it may be, don’t make a decision based on bonuses, alone. It's better for your business health to get a card that has good features in the long term and isn't as appealing in the short term.

Unlike short term sign-up bonuses, business rewards are an important consideration. That’s because business credit cards are designed for making large expenditures which could qualify for rewards. While browsing for cards to apply for, think about your business needs and how a business rewards card might help better serve them.

Perhaps the most enticing small business credit card perk is cash back. For most small businesses scrambling to catch every available dollar, cash is king. Cash back options range in terms and value, although you can probably expect up to 5% back on certain transactions if you pick the right card.

If used properly, the cash back features on your card are like a small discount on every purchase your business makes—but you have to remember to claim the cash and apply it to your card's statement.

There are a number of other perks that could be associated with your business credit card, like:

  • Gift cards
  • Store credit
  • Business service deals
  • Analytics tools and dashboards
  • Restaurant deals
  • Insurance discounts

You shouldn't prioritize these things while picking a business credit card because they tend to be unreliable over a long period, but there are a few exceptions. So, if you see an added perk that will be exponentially useful for your business, don't be afraid to factor it into your decision.

What About Your Credit Score?

You'll need a personal credit history to apply for a business credit card. This history determines which credit cards you might be eligible for.

When you apply for a business credit card, creditors will pull a credit report on you. Be sure to check your personal credit score and history before you apply so there are no surprises. You'll temporarily lose a few points on your credit score with each application, so you should try to maximize your chances of success by minimizing the number of applications.

If you find that your credit score is too low to have a good chance of success for the card you want, you still have options. Most people with varied credit could be eligible for a less competitive card, or one which will have a higher APR and fewer benefits.

If you have no credit history at all, or very bad credit, opting for a secured card will be the first step toward building better credit. A secured card is a way of "borrowing" from your own reserve of cash, which is held by the card company in the meantime. This is obviously not ideal, but it can help you build (or rebuild) credit until you qualify for a traditional business card.

If approved for your desired card, you’ll gain access to revolving credit designed with your business needs in mind. Try to keep your monthly credit utilization at less than 10% of your total credit line, and remember to pay off your balance every month.

How can I use business credit wisely?

It's common knowledge that using a credit card may lead to spending more than you would otherwise. The most important thing to remember about using credit is to treat it like cash that you'll have to pay back in the future, with interest.

The allure of credit is it lets you buy things that you can't afford today, but might be able to afford soon. By using credit, you don't have to wait for your savings to reach the price of the item you're buying.

That means your payment horizon for purchases on credit should be very close to your present cash situation. As far as your card's statement is concerned, your credit spending should be within about a month of your actual cash flow.

You should always try to leverage your credit to buy things that will help you grow or earn money for your business. In this case, credit is used an investment—-you're using the capital to purchase something that will generate revenue later.

Be wary of using credit cards as a way to fund day-to-day operations, unless you are doing so in order to earn perks or rewards and have enough cash on hand to pay off the balance. In short, it’s easier to avoid overextending your credit, if your small business requires a shallow investment.

Credit Cards for Small Business

Understanding how credit cards for small business can work to your business's advantage is tantamount to realizing that credit is something that you'll build on each month.

We've offered a few suggestions for great cards in business categories here, but the final choice has to be made based on the individual needs of your business. No matter which card you pick, be mindful of why you're interested in having a credit line to begin with and remember to pay off your balance every month.