Benefits of Small Business Credit Cards

By Frances Coppola | American Express^® Freelance Contributor
5 Min Read | November 13, 2020

Summary

Looking to grow your business? A small business credit card could help you to make things happen. Not only does a business credit card give you access to much-needed capital that you can use to grow, it also gives you the chance to earn rewards and in some cases, cash back, helping you to save money. A credit card can also streamline expense management, saving you from a world of hassle when tax time rolls around each year. When chosen carefully, the right business credit card can be a valuable business tool, giving you to access some pretty great benefits. Let's see how small business credit cards work, exactly, and what benefits they have to offer.

Small Business Credit Cards: How Do They Work?

Small business credit cards work like a personal credit card, but with some important key differences. A credit card for a small business is designed with business needs in mind. They offer rewards that are more relevant for business owners and can be a useful credit-building tool. You don’t need to be a corporation in order to qualify for a small business credit card, even sole proprietors are welcome to apply. Using one responsibly may also help boost a business’ credit score.

This article explains some of the ways small business credit cards can help businesses survive the dips and invest for the future, including:

• Smooth out cash flow.
• Furnish flexibility – let you set the pace of repayment.
• Rewards points or cash back can reduce the effective cost of business purchases.
• Help build your business credit score.

Using Your Small Business Credit Card to Smooth Out Cash Flow

Oftentimes, new inventory has to be purchased and suppliers paid before money comes in from customers. One benefit of small business credit cards is that they typically have an interest-free period on new purchases, which can be as long as 54 days, depending on when in an account’s typical monthly lifecycle you make the purchase. You could, for example, use your card to meet day-to-day business expenses, then pay the card off at the end of the interest-free period. This gives you time to build up cash balances and may reduce or eliminate the need for bank overdraft finance, which can sometimes be expensive. However, you’ll want to check your card’s terms and conditions carefully, since there may be fees for some types of purchases.

While charge cards generally must be paid in full at the end of the charging period, a small business credit card allows you to run a balance on your card temporarily. Although you’ll usually pay interest if you carry a balance from month-to-month – outside of any 0% intro APR promotional periods – this can be a boon if, for example, you have to stock up for holiday sales. You’ll still need to make at least the minimum payment every month, or your business and possibly your personal credit rating can be affected.

Managing cash flow this way with a small business credit card is a matter of balance: they can be a great way to cover short-term cash flow dips, but persistently running balances can work out to be expensive in terms of interest charges. 

Tips for Using a Credit Card for Your Small Business

There are a number of ways that a credit card can be used for a small business. Here’s a look at some small business credit card benefits that can help you to save money and streamline expense management.

• Allows You to Invest In Your Business
  Small business owners often need capital to invest in their business. A credit card can give you immediate access to the funds that you need to handle everyday expenses, or scale.
• Keeps Expenses Separate
  A credit card is a simple way to keep your business expenses separate from your personal. This can help with expense management and being organized will save you from a world of hassle when it comes time to pay taxes.
• Makes Reimbursement Easier
  If your employees pay for expenses that require reimbursement, such as travel or meals, a business credit card makes managing these expenses much easier. It’ll give you more control over the process as well. If you give your employees business cards, you can set credit limits or even cancel cards as needed.
• Gives You Access to Relevant Rewards
  Finally, using a business credit card can open a world of rewards that you can use. While this depends greatly on the business card in question, if you choose carefully and look for a small business rewards card, you can select a card that offers rewards that are relevant for you as a small business owner. Some of these rewards include bonus points for travel and hotels, or even cash back on purchases (Look for small business cash back credit cards). Be sure to consider your options carefully when taking out a business credit card to find one that fits your criteria, meets your needs, and gives you the best rewards.

Using Business Credit Card Rewards and Cash Back Programs

Business credit cards often have rewards programs that are geared towards the needs of a business. Some credit cards are designed specifically for large corporations while others are best for small businesses. Take a look at Business Vs. Corporate Credit Cards to see what these key differences are.

You can save up your rewards points and use them at the right time for your business. For example, you can use saved points to stock up on essential office equipment and supplies, or to take advantage of temporarily low air and hotel prices for future business trips and conferences.

Making purchases with a business credit card that has an interest-free period and a cash back program can help reduce business costs. It can be tempting to pay suppliers from business cash flow to take advantage of discounts for cash payment, but it may be better to rack up rewards points or cash back, especially if you can use an interest-free promotional period on your card, or if paying cash might lead to bank overdraft fees.

Using Your Business Credit Card for Large Purchases 

Small business credit cards can be a good choice for making large purchases, as they typically have higher limits than personal credit cards. If you pay off the balance within any 0% intro APR period, you’ve effectively financed your purchase interest-free while keeping your hard-earned cash for the day-to-day running of the business.

Alternatively, you can choose to pay down the balance over a longer period of time at the card’s interest rate. You only pay interest on the outstanding balance, so unlike a business loan you have control over the amount of interest you pay: the faster you pay off the balance, the less your interest charge. The interest rate on the loan may be lower than on the card, but loans are likely to have additional arrangement fees, early redemption fees, etc. When considering a large purchase, it’s worth evaluating the cost of financing with a business credit card versus a loan.

Building Your Business’ Credit Score

Using a business credit card responsibly helps to build your business’ credit score. This means using your card regularly for purchases, maintaining a balance well below your credit limit, making at least the minimum payment every month, and paying off the card in full whenever you can. It’s a good idea to use your small business credit card to pay suppliers who report to credit bureaus – and it’s OK to ask them if they do.

Building your business’ credit score can help you obtain business finance such as loans and overdrafts, and good credit scores can earn you lower interest rates when you need to turn to those options. Once your business has a good credit score of its own, you might be able to access finance for investment without having to provide personal guarantees or putting your house on the line. Easier access to finance can support your future plans and help you grow your business.