Business Credit Cards

Small business credit cards are great. Access to temporary financing is critical for my small business, and I'm sure this is the case for most small business owners across the country. Business credit cards help to keep your accounting organized so that you don't end up pulling all your hair out come tax time, and they offer a host of other great benefits.

I have 3 business card accounts open right now, though I only use one. I keep the other two accounts open as backup/emergency financing options. Why so many accounts? Well, I don't like paying interest on my credit card debt, so I surfed 0% intro APR business credit card offers in the same way that I used to surf zero APR balance transfer offers with consumer credit cards. I surfed these offers until the balance got low enough for me to pay the account down to zero with one payment.

Another reason for keeping the old business credit card accounts open: they help to build the credit rating of my business (in the same way that keeping my old consumer credit card accounts open helps to keep my personal credit score high.)

To be quite frank, for me, the #1 benefit of having a business credit card isn't what you might expect. What I like most is that a business card gives me anonymity when I am shopping online, and I do a lot of purchasing on the Internet. After making a purchase at a website, I enter my business name instead of my real name at checkout. If a crook is somehow able to get access to my online order information, by entering my business name, I'm making it much harder for an identity thief to wreak havoc on my finances.

Here are some other benefits:

• Competitive Interest Rates: Many of today's business credit cards offer interest rates that rival or even top the best small business loans offers from the banks. This can mean long term savings on major purchases made with a business credit card.
  
  
• Balance Transfers: Many of today's business credit cards are offering fantastic balance transfer offers which can save you lots of money. Not having to pay any interest charges on balances transferred to your business card for a set, predetermined period of time (usually 3 to 18 months) can go a long way towards improving your business's bottom line.
  
  
• Travel Accident Insurance: Most business credit cards will include a travel insurance feature at no extra charge.
  
  
• Additional Cards: You can order additional credit cards that you can give to your employees.
  
  
• Track Spending: The vast majority of business credit cards will send you reports itemizing your spending. This is great for staying organized and for staying on top of tax deductible items.
  
  
• Save Money: you can save money by using your business credit card because many banks charge fees for writing business checks.
  
  
• Prestige: The prestige factor of business credit cards should not be discounted.
  
  Taking a potential business client out for dinner is always a good idea. I can recall--on more than one occasion--when a potential client of mine has commented, "nice" or "cool" after catching a glimpse of my business name on my business credit card. A business credit card sends a clear message to potential clients: it's let's them know that you are serious about your business and not just another unemployed dilettante doing "consulting" work.
  
  

With business credit cards, other benefits may include extended warranty protection on the hard goods you purchase (like computers), discounts on hotel rooms and rental cars and other great business related discounts.

The only real downside of business credit cards is that, like personal credit cards, you can easily get carried away with your spending and end up with a mountain of debt. Think of the spending you do with a business credit card as cash; every time you charge goods or services on your card, think of it as spending cash for those goods and services. That will help to keep your business spending in perspective and help keep your business debt at a manageable level.

Paying an Annual Fee

Sometimes, paying an annual fee is OK. It may seem counterintuitive to pay an annual fee for a business credit or charge card, especially because most contemporary business credit cards being offered by reputable banks don't require an annual tribute. But if a card's rewards program is exceptionally cardholder-friendly, and you plan on taking full advantage of the card's rewards program, then paying an annual fee is often worth it. The perfect example of this is a business charge card with an annual fee of $60, but with an air miles rewards program which, if you're a frequent flier, can earn you a substantial amount of free travel. If you are not likely to take advantage of a card's rewards program, then you should choose a business card that's doesn't charge an annual fee (you are likely to get a decent rewards program anyway.)

Go For An Unsecured Business Credit Card First!

As a business owner or entrepreneur just starting out, getting financing may be difficult, especially when credit market conditions are tight, as they are right now. You may think that your only option is to apply for a secured business credit card account. Don't. As long as your personal and business credit histories don't have any serious negative items on them, you should try for an unsecured business credit card before applying for a secured account.

Here's how a typical secured business credit card account works: you supply the bank with collateral in the form of cash. Your credit limit is set to whatever your collateral deposit is, so if you deposit $10,000, your business credit line will be $10,000. The bank may or may not pay you interest on your deposit, and the only time you'll be able to access the collateral deposit is if and when you close the account.

An unsecured business credit card, on the other hand, works like a consumer credit card in that the bank does not require any collateral. The bank sets your credit limit based on your income, your personal and business credit history, and other factors like current credit market conditions. If you default, the bank will do its best to ruin your personal and business credit ratings, but it won't have any right to take your house, car or any other personal asset.

Initially, with an unsecured business credit card account, the assigned credit limit may be small. Don't let this discourage you. You'll need to be patient and build your company's credit rating by paying all your business-related bills on time. After about two years, you'll probably get an automatic credit line increase. If you don't, ask for one. If you don't get one, or if you aren't happy with the one your bank has given you, then apply for a new, unsecured business credit card account at another bank. If you decide to apply for 2 or 3 more cards, that's fine too, just remember to spread out your applications so that you don't appear desperate for funds; apply every 6 months or so. Spreading out applications will also keep your company's credit rating healthy.

If you apply for one or more unsecured business credit card accounts, and your applications are rejected, you can always apply for a secured card as a backup plan. Only in one or two very limited circumstances will an application for a secured business card be rejected, like if you've recently declared bankruptcy.

If you're looking to get access to $100,000 or more, then you'll need to apply for an old fashioned business loan or a business line of credit. Be prepared to offer some sort of collateral, or to accept a lien on your business and/or personal assets.

American Express offers unsecured business credit lines from $10,000 to $100,000. The business credit lines offered by American Express are very attractive because the application process is simple -- as easy as a credit card application -- and American Express is a highly reputable, global brand.

Once the credit rating of your business has been well established, obtaining financing will become much easier. Moreover, once your business has aged and is trusted by banks and other creditors, most lenders will only require a check of your business credit rating when you apply for credit, as opposed to checking both your personal and company ratings. It may take 10 years to build a superlative business credit rating, but it's worth the wait.

Copyright © 2008 Steve "AmCy" Brown, American CyberSpace®