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May
15, 2006
What
Entrepreneurs Should Know About Small Business Credit Cards
The stories of entrepreneurs financing their business startups
with credit cards are legendary. In fact, a Small Business Administration
survey estimated that over 70 percent of small businesses use
credit cards to finance their businesses, and the smaller the
business, the more likely credit cards were or are used.
It's easy to see why. Bank loans, Small Business Administration
loans, venture capital--all are complex and/or time consuming
for entrepreneurs who just want to get going.
For most entrepreneurs, though, the credit card their business
uses is whatever card is already in their wallet. For a variety
of reasons, that's a mistake. A smarter choice for most entrepreneurs
is one of the many small business credit cards available today.
If you run a business, small business credit card issuers want
you--and they're working harder than ever to make it worth your
while. In fact, if you're not using a small business credit
card, you could be leaving money on the table--and that's unacceptable
to most cash-crunched entrepreneurs. (To compare current offers,
view the Low
Interest Business Credit Cards and Business
Credit Cards with Rewards sections of IndexCreditCards.com).
Think your business is too small to have a business credit card?
Think again. Most small business card issuers think of their
core customer as the owner of a company made up of ten people
or less, and they recognize the great potential of the sole
proprietor.
For a long time, most business owners turned to American Express,
and with good reason. American Express has been offering business
credit cards longer than anyone, and they've built up a well-deserved
reputation for being the business owner's friend. But other
major issuers have moved aggressively to get a share of this
market, including Citibank, Chase and Bank of America. One company,
Advanta, focuses solely on credit cards for small business owners.
"This
segment is growing at a faster rate than consumer," says John
Delaney, Senior Vice President, Chase Card Services. Delaney
notes that, in the past, issuers often focused on the consumer
and large corporate segments, but didn't necessarily recognize
the special needs of the small business owner. The explosion
of entrepreneurial activity in the last decade has made issuers
take notice, and they've crafted offerings to serve the growing
market.
For entrepreneurs, all this fussing over you means better deals,
whether it's interest rates, rewards or business discounts.
O.K.,
great, they want you. But why should you want them? What advantages
do small business credit cards offer the business owner? There
are plenty:
Separation of Finances - Intermingling business and personal
expenses on the same credit card could make for headaches when
your credit card statement arrives, not to mention at tax time.
Was that gas purchase or restaurant meal a business or personal
expense? It may be hard to remember, and it creates an administrative
nightmare if you're not using a credit card exclusively for
your business.
Business Discounts - Perhaps the most attractive feature
of small business credit cards is the business-focused discount
offers that come with them. Discounts from major business suppliers
are common, and they are discounts that few personal credit
cards can match.
For example, American Express' OPEN Savings program offers 5%
discounts at FedEx, AT&T, Hertz, Courtyard by Marriott, and
more. The discounts are ongoing and automatically deducted on
your credit card statement, so there are no hoops to jump through.
Citibank has similar arrangements with Avis, Budget, Cingular
Wireless, DHL and others. In addition, CitiBusiness cards now
offer a free discount prescription drug card for its cardholders
that can chop 10 to 60 percent off of the cost of prescription
drugs. Small business owners can also extend this benefit to
employees for just ten dollars per year.
According to Advanta Communications Director David Goodman,
Advanta can even tailor cards specifically to certain small
business types. Goodman used the example of credit cards tailored
to dental practices--Advanta has an agreement with a major dental
distributor to offer supplies at a discount rate when bought
with an Advanta business credit card.
Introductory Offers - Uncertain cash flow is the bane
of many a small business, especially in the early going. Taking
advantage of a 0% introductory offer on a new small business
credit card can give you a little breathing room while waiting
for accounts receivable to outpace accounts payable. But beware--this
is a cash flow strategy, not a strategy for funding a longshot
business idea with no clear path to profitability. Only take
advantage of zero interest offers if you are sure you'll be
able to repay your balance when the introductory period is over.
Citibank, Chase, and Advanta all offer business credit cards
with no interest charges for the first year; other cards offer
six-month interest-free periods.
Extra Cards for Employees (That YOU Control) - Small
business credit cards almost invariably offer multiple cards
under the same account, allowing you to obtain cards for employees
who need spending privileges. Even better, most card companies
allow you to control how much your employees can spend and even
what types of purchases they can make. And you can usually do
this all online, for maximum convenience.
Business Rewards - Yes, you can get rewards whether you
use a small business credit card or not. But certain small business
cards offer rewards tailored to your business interests, whether
it be a focus on travel rewards, fuel rewards, office supplies,
or simply cash back. For small businesses that know they will
pay off the card's balance each month, rewards can be a direct
source of cash, a free travel trip, or serve as gifts for employee
recognition or as end-of-the-year bonuses. If your business
spends heavily on its credit cards, you might consider paying
a nominal fee (usually under $100) to get a card with greater
rewards options. (American Express offers a number of cards
that beef up the rewards when you choose a card with an annual
fee.)
Higher Credit Limits - Many small business cards offer
larger credit lines than you could obtain with a personal credit
card. Also, being a small business credit card customer could
serve as a gateway to larger loans if necessary. American Express,
for example, offers extended credit lines for small business
customers that generally do not require lengthy loan processing
for approval.
There's a final aspect of business credit cards that could be
viewed as either a positive or a negative, depending on how
responsibly you use your card. For
most business owners, getting approval for a new card is based
on your personal credit history. (If your business has been
around for a few years, your business credit history could be
taken into account as well.) It follows then that the repayment
of the card will also impact your personal credit history.
On the upside, if your business meets its credit card responsibilities,
you can improve your personal credit score while also building
toward a card based solely on the credit of the business. On
the downside, failing to pay your small business credit card
on time or going over the limit could impact your personal credit
score, and that has ramifications for every loan or credit card
you might pursue in the future, even if your business ceases
to exist.
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