Business owners have options when it comes to the business of credit cards
|Rebecca Lindsey is a staff writer for Credit Ratings.com.
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The freedom to be the boss is just one of the
perks sought after by business owners. But along with this freedom comes the
concern of fulfilling responsibilities to customers, employees and lenders.
Chief concerns are usually those dealing with money.
Small business owners frequently borrow funds and
often use credit cards to get their business off the ground. The most frequently
used kinds of credit were personal and business credit cards, lines of credit
and vehicle loans according to a study published in 2003 by the Small Business
Administration. In fact, 46% percent of small firms used their personal credit
cards and 34% used business credit cards to help in their business matters.
While it is sometimes necessary to utilize
personal credit cards during the start-up phase of a business, continuing to use
a personal credit card may not be the wisest choice once a business is
‘It’s not personal. It’s just Business.’
Tee Dunn, a small business owner for four years
and a member of
CreditBoards.com, says that like many, she utilized her personal credit
cards in the early days of her business. As her business grew and continues to
grow, she finds her needs changing.
“It was becoming hard to gauge how much money I
was making while using my own credit cards and cash; I needed to separate my
business and personal cash flow,” she says.
- There are distinct advantages to having a
credit card in your business’ name.
- Build credit history in the business’ name
- Capacity to account for expenditures
accurately, and to correctly gauge income
- Easy itemization for tax purposes
- Vendor discounts
- Concierge services offered by the lender
- Financial consulting services
Detweiler, a credit expert and author of “The Ultimate Credit Handbook,"
unless the business has been incorporated for at least two years, has about 25
employees, and a large revenue (around $2 million per year), then a business
credit card will have to be personally guaranteed. This means that the issuer
will base its decision in large part off the credit history of the person
signing for the credit card.
What this means for most small business owners is
that they have to start small and build a credit history for their business. For
those trying to re-build their credit, a credit card secured by and equal to a
collateral deposit may be necessary.
Much like her business, Tee built her business
credit line from the ground up. She started small by applying for a card from
Office Max with a $250 limit; she also obtained lines of credit from Federal
Express and Staples. While some of these credit cards did require a personal
guarantee to prove her ‘credit-worthiness,’ Tee has quickly managed to establish
credit for her business. With good credit management, she reports offers coming
in from larger lenders within six months – some offering credit limits of
Tee states, “The perks are great, too. With a
business credit card, you get discounts from wholesalers who wouldn’t give a
second glance to a personal credit card.”
There are many other perks afforded to business
card holders, including travel accident insurance, collision coverage on rental
card, free or inexpensive additional cards for employees, individual credit
lines on each card, and detailed monthly, quarterly and annual transaction
Playing Your Cards Right
Lenders have good reason to be interested in the
small business owner- owners represent an estimated $75 to $100 billion market.
Choices such as cash-back incentives, free additional cards for employees, and
free online account management are all perks that indicate increased interest in
the small business segment.
Tom Sclafani, spokesperson with Open for American
Express, says that Open: The Small Business Network, offers a variety of
features specifically relevant to the business owner, including online account
management and discounts from partner vendors. “With Open, cardholders receive
automatic discounts from Open partners which include Staples, AT&T, and FedEx.”
Open also offers expense reporting tools and
online account management for all the credit cards tied to the account. Says
Sclafani, “not only does this allow the owner to manage cash flow and budget,
they are able to compile expenditure information to leverage with their
CitiBusiness Mastercard offers an "Ask the
Experts" business consulting program. Owners can ask specific business-related
questions and within two business days receive a personalized answer that
includes information, ideas and suggestions.
(These are just a few of the incentive offers
and business management tools offered. For more information on these and other
business cards, visit the
business credit section of CardRatings.com.)
What to Look for When Shopping for a Business
- Annual Percentage Rate. It’s a
competitive market; make sure you are getting the best interest rate you
- Fees. Are there annual fees or other
types of fees? If so, will you gain enough incentives to justify the fees?
- Perks. What kind of perks will
benefit your company the most? If you travel a lot, then look for cards that
earn miles with no blackout dates. If you make lots of business purchases
look for the cards that offer cash back incentives or vendor discounts.
- Ability to monitor spending. How
often does the issuer send reports on spending and how detailed are the
reports? Can you monitor individual employee expenditures? Can you view
spending online? Can you download the reports into your accounting system?
Are you able to code certain types of expenses and set limit on those
- Flexibility. Can you set different
credit limits for different employees? Can some employees have access to
cash while others don’t?
- Card acceptance. If you travel a lot,
make sure to get a card that is widely accepted such as MasterCard, Visa,
Discover, and American Express.
- ATM. Look for a national ATM network
if you or your employees travel frequently.
Comparison shopping is always a good idea.
ratings and reviews of business credit cards (includes online application
links) will help to simplify this process. Good luck!