by Jeff Hindenach, Editor with NextAdvisor.com
Getting a business loan is not always easy, especially in the current credit market. Many businesses are looking to business credit cards to help them fund startup costs when they are first building their business.
So what should you consider when looking for a business credit card?
Why get a business credit card?
First, let’s take a look at why a business credit card could be beneficial. A business loan is typically the first choice for many small business owners, but a business credit card can often be a good supplement to the business loan. For example, it takes longer to be approved for a business loan than it does for a business credit card, so if you need to start your business right away, you can use a credit card for the upfront costs without the hassle of being approved for a loan.
“When we started our company in 2008, traditional banks were not amenable to lending to small start-up companies,” explained Ari Zoldan, the CEO of Quantum Networks, a telecom company that was recently on the INC 500 list. “Therefore, we were forced to use credit cards to obtain the cash we needed to purchase and turn inventory month after month.”
Also, if you are short on money when your bill comes, you can pay the minimum payment due on your credit card instead of being forced to pay the full monthly installment of a business loan. Sure, you’ll get hit with interest charges, but they will probably be lower than any penalties the bank throws at you.
Wade Benz, owner of USimprints.com, used business credit cards to help launch his business. Beyond the flexibility and ease of the cards, Benz also saw the protection benefits that they provided.
“As a small business you can also leverage credit cards to protect yourself if you purchase a good or a service that you are not pleased with,” Benz explained. “In some cases we were able to recover lost revenue when goods we purchased were not correct.”
If you are going to go the business credit card route, just beware that the same protections that consumer cards enjoy because of the Credit CARD Act of 2009 don’t apply to business cards.
“The CARD Act offered new consumer protections, but only to consumer credit cards,” Beverly Harzog, credit card expert and author of The Complete Idiot’s Guide to Person-to-Person Lending, explains. “For example, with consumer cards, banks can’t suddenly raise your APR without warning. So owners just need to be aware of that when they use business credit cards. They need to be vigilant about reading the mail and be on the lookout for changes to the terms of their credit cards.”
What business credit card should I get?
The best card to look for is one with great rewards, so that it provides capital for you to start your business and also helps cut costs by giving you a little something extra back.
“We used those rewards to further our domestic and international partnerships,” Zoldan said. “With the airline travel, cash back and discounted hotel stays available through the rewards program, we were able to fly anywhere within or outside the country at minimal cost, allowing us to follow up on business leads and build a great relationship network.”
Here are some suggestions for great rewards cards based on how you will be using the credit card:
Best card for office expenses
When you are first starting a business, one of the most important hurdles to jump is setting up your office, which can be expensive. Getting a business credit card that rewards you for spending money on office expenses is a good way to cut some of the costs of setting up your business.
The Chase Ink Cash Business Card offers you five percent cash back on office supplies, cable, Internet and telecom. It also offers two percent back on gas and dining, which is good for a small business that travels a lot by car or has a lot of client meals. In addition, you get one percent cash back on all other purchases. You also earn $200 when you spend your first $3,000 in the first 3 months. The card has no annual fee.
Best card for all other expenses
Some businesses don’t need to set up office space or may prefer to spend their capital on other expenses.
“We used the cards to finance initial orders as we built credit and terms with vendors,” Benz explains. “Our company also used credit cards for advertising like Google pay-per-click, giving us an initial boost of new customers and business. It was like a small line of credit, without the hassle from a bank.”
In this case, it’s a good idea to look for a card that has a good cash back percentage for all purchases. The Capital One Spark Cash for Business card offers two percent cash back on all purchases, as well as a $100 bonus if you spend $1,000 in the first three months. The card has no annual fee the first year, but it is $59 every year after.
Best card for business travel
If your business requires a lot of traveling, it might be a good idea to get a business credit card that lets you earn miles. The Capital One Spark Miles for Business lets you earn two miles for every dollar you spend. There is no annual fee for the first year ($59/year after that), and you can redeem your miles for any airline at any time. The card also has no foreign transaction fee, so it’s good for international travel as well.
Best card for big spenders
If your business is already established or you plan on spending a lot on your business card, consider the Business Platinum Card from American Express OPEN. The credit limit on the card can go into the six figures and they have over 40 membership rewards and features that include $200 annually for incidental airline fees from a participating airline, access to several airlines’ airport clubs, 24/7 concierge service to help with entertainment and travel planning, no limits or expiration on your points, and you can earn up to 10 points per dollar if you shop their Membership Rewards site.
However, be warned, this is a charge card, so you must pay off your balance each month, and it does have a $450 annual fee.
Jeff Hindenach started his career as a journalist for the San Jose Mercury News and the San Francisco Examiner. He is currently an Editor with NextAdvisor.com, a leading consumer and small business information web site. He specializes in credit monitoring, legal services and security software.