How to Choose the Best Credit Card for Your Small Business

As an entrepreneur, you’ve probably received several offers of low-rate credit cards that promise to solve all your financial worries and provide you with a more flexible source of cash to jumpstart your business’s growth.

However, business credit cards—like any financial tool—should be used strategically to ensure safe, predictable growth without incurring unmanageable amounts of debt.

To find the option that works best for your unique situation, the first step is to review several different credit offers to find the option that works best for your unique situation.

In this article, we’ll explore some basic tips and tactics you should follow to find the business credit card solution that’s right for you.

Note, however, that you should first speak to your business bank of choice about their credit options before you begin exploring cards at other financial institutions.

Overall, the financial differences between most credit card offerings are small.

This means that while factors such as annual percentage rate (APR) and fees will play a central role in your decision, the most important topics to consider are often additional features such as the level of customer service offered by the issuing bank or the presence of a mobile app or online dashboard.

What is a business credit card?

At face value, business credit cards operate very similarly to the ones you use in your personal life.

The card itself helps you access a revolving line of credit (as opposed to a static amount like a business loan) that you can use for everyday expenses like purchasing inventory or paying for services and tools.

Then, you pay back the amount borrowed partially or in full at the end of each month, with the remaining balance incurring a small amount of interest at the end of each billing cycle.

What are the differences between a business and a personal credit card?

There are a few key differences you should look out for when considering the divide between business and personal credit cards:

• Eligibility and ease of applying — For a personal credit card, the bank will only look at your own individual credit history in areas such as credit utilization and the age of any accounts. For business credit card applications, however, banks will generally need additional financial information about your business. They will also review both your business’s credit history (if any) as well as your own to determine whether to approve the credit application, and for how much.
• Higher credit limits — In general, it’s easier to receive a higher credit limit on a business credit card than it is on a personal card. This is because the card issuer will consider both your personal income as the owner and the income of the business to determine where to set the limit.
• Business-focused rewards — While personal credit cards generally offer rewards tailored to an account holder’s individual needs, business cards focus their rewards and offerings on business-related expenses and benefits. For example, some common rewards include additional points on travel, cash back on common business expenses and offers on services important to business operations (such as discounts on shipping if you use a certain carrier).
• Higher interest rates — Business credit cards are generally unsecured loans, meaning the card issuer is taking on greater risk when issuing the card than with personal credit cards. Combined with risk factors such as the likelihood that a business will go under (when compared to a person going bankrupt) and additional administrative costs in servicing business credit cards, business credit cards often carry interest rates in the realm of 20-30% annually.
• Reporting and team-focused infrastructure — Because they’re intended to supplement a business’s broader operations and cash flow needs, business credit cards often come with additional perks and features that you won’t find on personal cards. For example, it’s common to have more detailed reporting tools on business cards that integrate with bookkeeping and tax preparation software. Similarly, these cards often come with the ability to issue cards to employees, allowing them to use the credit in the account to make purchases on behalf of the business. When issuing cards to employees, you will want a card program that allows you to control spending limits and categories on each employee's card.

One point to remember is that many business credit cards require a personal guarantee to ensure any amounts owed on the card are paid in full.

This means that in the event your business cannot make its obligation to pay down the credit card, you will be personally liable for any debt remaining on the card.

What do I need to open a business credit card?

The required information to open a business credit card falls into two groups: information about you (and any other owners) and information about the business itself.

When it comes to your own requirements, you’ll have to provide all the same information you’d need to open a personal credit card, such as your name, date of birth, social security number and income information.

For your business, you’ll need to provide details such as the business’s name and contact information, its history and financial performance, the business category and type of work you do, the structure of the business and information about beneficial ownership, a federal tax ID or another form of identification such as your own social security number.

Often, the best way to approach your business credit card application is to collect a few key documents about your business and take them to an in-person appointment with a local banker.

For example, you could bring in your articles of incorporation and your recent financial statements (balance sheet, income statement, cash flow statement) and additional information as required by your bank (such as a tax identification number) to help you in opening the account.

3 tips for choosing the best credit card for your small business

Typically, most people will just look at the basic numbers of a credit card when determining whether to apply. However, especially when it comes to business credit cards, there are several other factors you should consider when comparing different offerings.

In fact, you may find that the APR on the card and the presence of fees will end up being the least important factors you look at, outside of disqualifying certain cards that have exceptionally high interest rates or outlandish charges for using the card.

1. Review any rewards or sign-up bonuses

Business credit cards often have several unique benefits that are designed to make them more attractive to business owners.

For example, many cards come with higher-than-average cash-back rewards on business spending, while others may provide you with a sign-on bonus or a cash promotion such as an annual software credit (to pay for subscription services) to incentivize the creation of new accounts.

One important perk to look out for is an introductory APR for newly-created accounts, which could provide you with a 0% interest rate on the card’s balance for the first year or two of billing cycles.

In some cases, your business may even end up gaining more money than you pay in interest by leveraging the numerous cash rewards and introductory offers present in most modern business credit card sign-on processes.

2. Make sure the account can integrate with your bookkeeping solution and other financial tools

One important aspect of your business’s credit account is that it should integrate seamlessly with your other financial tools to help you track your spending and better manage cash flow.

Businesses gain efficiencies when every tool works together to automate the repetitive processes that would otherwise hinder your growth.

For example, you could save an immense amount of time by automatically importing all business transactions into your bookkeeping software alongside any associated metadata, such as to whom the expense was paid and the expense type.

For this reason, it’s crucial for you to ensure your credit provider has options available for integrating with or the ability to download files into the bookkeeping and tax preparation solutions you use at your business.

3. Improve both your business’s finances and your personal financial situation before applying for a business credit card

When you apply for a business credit card, providers will offer a range of APRs depending on your personal creditworthiness.

After looking at different card options, you may find language in the offers such as, “0% introductory APR for the first 18 billing cycles, followed by an APR of 20% to 30% based on your creditworthiness when you open your account.”

What this means is that the lender will review both your personal finances (or “creditworthiness”) as well as the finances of your business at the time of opening the account to lock in a particular APR for the credit account.

If you have poor credit and your business has no credit history, you may find that your offer will fall on the higher end of this APR range. Meanwhile, business owners with a strong credit history and detailed breakdowns of their business’s performance may qualify for lower interest rates on new business credit cards.

For this reason, you should take steps to both improve your own credit rating and solidify your business’s financial footing before attempting to lock in a rate.

In practice, this will often mean working with a bookkeeper or other financial professional to prepare key financial statements for your business, such as a balance sheet, income statement and cash flow statement, as well as ensuring you can comfortably guarantee the credit card itself with your own funds should something go wrong with your business.

Speak with a local banker about your business’s credit options today

There are a lot of factors to consider when choosing the right credit card for your small business.

Not only do you need to consider the card’s basic numbers, such as APR and how much you’ll pay in fees each year, but you’ll also have to weigh more peripheral factors such as customer service and whether they can integrate into your business’s existing technology and workflows.

The first step is to schedule an appointment with a local banker who can help talk you through your different routes for opening a new credit account.

By talking about your business’s unique needs and challenges with a trusted financial professional, you can equip yourself with the tools and information required to make a smart financial decision about your business’s future.