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Months into the ongoing coronavirus pandemic, small businesses are facing an unprecedented financial challenge. With sweeping closures, lost revenue and added expenses to keep employees and customers safe, many small businesses are experiencing raising costs—and lower return. The restaurant industry has been hit especially hard: As of December 7, 2020, 17 percent of restaurants are closed permanently or long term, according to data from the National Restaurant Association.
While some have found success switching to a virtual or socially-distanced business model, this isn’t practical for every business. But if you’re a small-business owner, you do have some options for financial assistance. As part of recent coronavirus stimulus packages, the federal government has allotted funds to help businesses cover expenses like payroll. The right business credit card can also help you weather this economic crisis. For example, a card with a 0 percent intro APR can give you some extra time to pay off essential business expenses without accruing interest.
And if you have the means to support other businesses in your community, you can do so by purchasing products from local stores instead of chains or large online outlets, ordering takeout from your favorite local restaurants or buying gift cards to use once the pandemic is finally behind us.
Types of business credit cards
Invest some time in determining the ideal business credit card for your business so that you can reap the benefits with the most value to you. Here’s a breakdown of different types of cards and how they might appeal to you based on your business objectives:
Good for: Helping small businesses maintain cash flow
Just like personal cards, cash back business cards are a popular choice for business owners looking for simple ways to put money back in their pockets. Some cash back business cards offer a straightforward flat rate on all your business expenditures while others have tiered rewards in different categories that may be more useful if they align with your spending.
Good for: Owners who want to offset costs of business trips
If your business requires frequent travel, a travel credit card is a great way to not only save but also take advantage of perks like lounge access and travel insurance. You can often increase the value of the points you earn on these cards even more by redeeming them through issuer membership programs, like redeeming American Express® Business Gold Card points through American Express Membership Rewards.
Good for: Businesses that need to manage and consolidate debt
If your business has taken on high-interest debts in the past, transferring the balance to a business credit card with a lower APR can help you clear debts more quickly and save money on incurred interest. Business cards are less likely to offer 0% introductory balance transfer rates than personal cards, but you can find some with low variable rates that allow a low or no-fee transfer. Make sure you understand the terms and figure out whether the interest savings are worth any fees you’ll incur. You can run a simulated balance transfer with Bankrate’s Credit Card Balance Transfer Calculator.
Good for: Owners who want to maintain financial discipline
Though they work in largely the same ways as credit cards, charge cards differ from credit cards in that they have no pre-set spending limit. Instead, purchases are approved based on a number of factors in your financial history and you must pay the balance in full each month. Charge cards may be a good option if you have large purchases planned, but make sure your business has the cash flow to cover any charges you make month-to-month. Charge cards are primarily issued by American Express.
How to choose a business credit card
- Assess your spending. Be aware of the categories you spend in most frequently in order to choose a card with rewards that will maximize those expenses.
- Sum up your expenses. Look at your spending history and what you expect to spend annually to determine whether a card’s annual fee is worth its rewards. An easy way to get a rough estimate is to multiply one credit card statement by 12.
- Plan ahead. If you know there may be times when you risk carrying a balance, whether you’re anticipating periods of slow growth or you’re planning a large purchase to grow your business, you should prioritize a low standard APR card to help mitigate interest payments.
- Check out additional card perks. Look further than cash back percentages and points rewards to see what else a card has to offer, from airport lounge access to free additional employee cards and other tools that can help your business grow.
How to apply for a business credit card
The business credit card application process is similar to applying for a personal credit card, but not entirely. Here are a few things you might want to prepare for:
Submitting your information
When you apply for a business credit card, the information an issuer asks for may differ depending on the type of business. Regardless of how your business is structured, though, issuers will be looking for signs of good financial health and at least good credit, though there are a few business credit cards for bad credit.
As a sole proprietor or freelancer, you’ll likely only need to provide the same personal information required for personal credit card applications, including your name, Social Security number (in some cases you may use an employer identification number instead), address and income.
As an LLC or corporation, be ready to provide:
- Your personal information
- Information about your business, including name, tax identification number, address and business income
- Additional information and documents related to your business for verification after receiving an initial approval
- A personal guarantee stating that you’re personally willing to assume liability for any debt your business incurs. This is required by most business credit cards, with a few exceptions.
Always be sure to also provide all documentation the issuer requests, or you’ll risk your application being discarded.
Be aware of effects on your credit score
Regardless of your business type, the issuer will also pull a hard credit check on your personal report, even though the business line of credit will be separate from your personal accounts and won’t affect your personal credit utilization rate.
Similar to applying for personal credit cards, you should evaluate your financial health before submitting any applications. Evaluate the length of your credit history, whether you have any negative activity on your report and your credit score itself. Don’t apply for any cards that you know you’re unlikely to qualify for, as too many applications in a short time period can affect your score negatively.
Tips on how to use business credit cards
- Establish spending guidelines to ensure you don’t take on high-interest debt using your business credit card.
- Outline what constitutes a business expense, set your own spending limits outside of the designated credit limit and have a system in place for tracking purchases to ensure adherence to the rules.
- If your business is made up of multiple employees, have a clear policy in place to decide who will receive an employee card. Most importantly, communicate all policies and guidelines across the business.
- Use your card responsibly, but don’t forget to actually use it. Especially if your card charges an annual fee, you’ll want to ensure you’re maximizing your rewards and getting the most value out of your spending.
- Stay diligent in keeping your personal expenses separate from your business expenses to simplify bookkeeping.
- Don’t let your cash back or rewards points expire. Redeeming your rewards regularly can ensure that cash back or points value is invested back into your business rather than going to waste.