Finance 101: How to choose the best credit card for your small business

This is the second post in a series on the basics of small business finances. Check out our first post on small business bank accounts, and stay tuned for future posts in this series, including information about bookkeeping.

Hopefully, you’ve read our first post about navigating your small business finances and learned why it’s important to open a small business bank account to keep your personal and business accounts separate. Just like with bank accounts, a small business credit card is an important component of establishing good financial practices for your small business.

You should use a business credit card for the same reason you should have a business bank account—keeping your credit cards separate can help to protect your personal finances if your business struggles financially. What’s more, a business credit card is a crucial element of building your credit profile. Using a business credit card is one of the easiest ways to improve your business credit score, which can help you qualify for and receive better interest rates on loans or other credit products. Having a business credit card when you start out can make the difference down the road if you need financing to purchase new equipment or move into a larger office space. Additionally, using a business credit card may offer you rewards you can put back into your business and may help you track your expenses more easily, saving you time and money.

Small business credit cards are a unique product offered by most banks and major credit card companies, and they are not the same as a corporate card. Once your business revenue and credit score grows, you may qualify for a corporate credit account, which is an even better way to limit your personal financial liability. However, if you’re just starting out, you’ll want to consider a small business credit card.

Even though opening a business credit card is a great way to protect your personal credit score in the long run, it’s important to understand how your business credit card is tied to your personal credit history. If you don’t have a sufficient business credit history, you will need to guarantee your business credit card personally. This means having a good personal credit history can help you qualify for better interest rates for your business credit, but your options might be limited if your personal credit score is below 620.

If you don’t have a sufficiently high personal credit score, you might want to think about a secured card, where you put a cash deposit down against your credit limit. Secured cards are great ways to build your credit score so you can qualify for other credit products. Whether or not using a business credit card continues to affect your personal credit score once opened depends on the bank—some banks send data to personal credit agencies, while others don’t, so it’s important to ask this question before choosing which business credit card to open.

Your first thought may be to open a credit card with the bank you use for your business, and there can be many advantages to that. For example, some banks offer better credit terms (like a lower interest rate) if you have multiple products with the bank. But if this isn’t the case or you’d like to shop around, there are some things to keep in mind to help you decide which business credit card is right for you:

Features of a small business checking account to consider include:

  • Interest rates—Just like with personal credit cards, business credit cards have a range of interest rates, which can be as low as 13% or as high as 25%. However, many small business credit cards offer introductory periods of 0% APR, which offers you a period of zero interest. This can be a great option if you know you need to finance some startup costs and carry a balance for some time.
  • Rewards—If you don’t plan to carry a balance, you may want to choose a card that will maximize rewards or that offers a sign-up bonus. Examples of these types of rewards include cash sign-up bonuses once you’ve spent so much in the first few months, cash back on your purchases, travel rewards or other customizable rewards like more cash back if you pay for your internet and phone services on your card. Think about what type of spending you’ll do for your business and choose a card that rewards that type of spending.
  • Fees—In addition to understanding the interest rate on your card, make sure you know if there are any annual fees for using the card. Many business credit cards are low- or no-fee (less than $100 per year), so you should be wary of any card with a high annual fee.

If you want to learn more about your small business credit card options, check out NerdWallet’s list of the best small business credit cards. While small business credit cards are a great way to build credit and maximize the spending you need to do for your small business, keep in mind that you remain personally liable for paying off your business credit card debt. Make sure your credit spending fits in with your business plan, and avoid spending more than your business can afford.

Once you’re working to build your business credit history, you should know how to track what money comes in and out each month. Stay tuned for the next installment of this series on choosing the best bookkeeping tools for your small business.

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