Once you start a small business, the offers start rolling in: this business credit card, that business credit card.
It may not be obvious why using a card specifically for your business is such a useful tactic—and maybe you turn down most of what comes across your desk.
The truth is, a business credit card is an excellent financial tool for small business owners, helping them:
- finance large investments
- build business credit
- pay off existing debt
- accrue useful rewards
- protect their purchases
When used the right way, your card can help you reach a new level of effectiveness as a business owner—avoiding cash crunches, empowering employees, and making long-term financial decisions.
To do that, you need to use your card like an expert. Here are seven tips on how to do just that:
1) Use your card to separate business and personal expenses
First and foremost, business credit cards are, despite the similar name, a very different product than personal credit cards.
We’ll go over more of the specifics in a bit, but for now, recognize that using your personal credit card to cover business expenses is not the same thing as having a business credit card.
Business credit cards offer higher credit limits and more lucrative rewards than cards branded for personal use.
But the most important thing a business credit card does for you is separate your business and personal expenses.
Many new small business owners, especially sole proprietors, think they can get away with putting every expense on their regular card. This has two major drawbacks:
- Your business bookkeeping and accounting will become a nightmare as you try to comb your statements and declare certain expenses business-related and others as your groceries or movie tickets.
- You’ll lose corporate protections that can make you personally liable for certain debts and issues with clients by “piercing the corporate veil.”
The most financially responsible thing you can do as a business owner is to use your business card to only pay for business expenses.
All the other perks you get from using it are just an added bonus.
2) Choose a card that aligns with your current business interests
As you might have seen from all those business credit card offers you got in the mail, different cards offer different rewards, perks, and other unique benefits.
Some credit cards come with no annual fee, while others offset any fees with rewards points based on spending in categories like travel or office supplies. How do you know which to pick?
The answer is simple: What are your current needs? How do you spend your money, right now?
If you travel around the country to meet with clients and broker deals, a travel rewards credit card is a must.
Do you need to pad your bottom line? If so, a cash back card is useful.
Looking to finance a major purchase? Seek a low-interest card.
Not all credit cards are created equal, and you may not qualify for the cards with the very best offers at first.
But once you build up your business credit score, you will open up new options that will multiply the rewards potential of your purchases.
3) Take advantage of a card with a 0% introductory APR
Some of the most elite business credit cards on the market come with a 0% introductory APR.
APR is “Annual Percentage Rate,” a holistic percentage that includes interest rate and any other fees that you might rack up in using a card.
These cards typically give you 9–12 months where, as long as you make your minimum payments and stay in good standing, you don’t need to make additional payments on your purchases.
That’s an interest-free loan from your credit card issuer.
This kind of offer is crucial if you need to make a major investment, such as a bulk inventory purchase or an upgrade to heavy machinery.
And don’t expect that you’ll be able to pay it off within a single billing cycle.
Some 0% intro APR cards even allow you to do a balance transfer, where you move existing debt from one card onto your new card.
This gives you a chance to pay off the balance without accruing more interest.
Once your intro offer expires, your interest rate will return to your agreed-upon rates (based on the market and your credit history).
But while it lasts, it’s an unmatched financing perk.
4) Use a tool to track your spending and rewards
One thing that a credit card company hates to do is tell you when your rewards points and perks are about to expire.
It’s not that they’re mean people—but if they can legally avoid giving you a discount or payout, they’re happy to do so.
Don’t fall victim to letting your points expire and losing out on all the hard-earned extra money you’ve accumulated.
Use a tool like AwardWallet, which has both free and paid versions, for tracking all your corporate rewards.
Also use it to analyze your credit card spending for optimal use across various categories.
5) Avoid enormous, regular purchases or expenses
It’s one thing to finance a few big-time purchases on a credit card, especially if you have a low interest rate (or a 0% interest rate during your introductory period).
But business owners can quickly get into trouble if they use their business credit card to pay for things they can’t afford at the moment.
One of the main reasons why small businesses fail is that they run into cash flow issues.
Even successful businesses can overextend themselves and tie up too much money in certain initiatives or campaigns.
Suddenly, they need to cover things like payroll or emergency repairs not with cash, but their credit card.
If you find yourself regularly putting major purchases on plastic, you are operating without enough working capital.
It’s time to investigate other low-cost financing options, such as a line of credit; or reworking your business model.
6) Understand the difference between a personal and business card
As discussed earlier, there are major differences between your personal and business credit cards.
Business credit cards give you greater credit limits, better rewards, and so on.
There are drawbacks to business credit cards, however, that you need to be aware of. For example:
- Balance payments are handled differently:
With personal credit cards, when you make a payment on an account with different interest rates, the issuer legally must apply the payment to the higher rate first.
Not so with credit cards—they could apply it to your lower rate, meaning you’ll continue to rack up higher interest rates.
- Consumer protection laws may not apply:
Laws like the Credit Card Act of 2009 that require personal credit card issuers to warn customers that their APR will change may not apply to your card.
You’ll have to be more diligent about checking in with your issuer about your terms and conditions.
Don’t just assume when it comes to your credit card. There’s too much at stake—namely, the success of your business—to not take the time to make sure you’re not paying more than you should.
The bottom line
As a business owner, you’ll need all the help you can get your hands on when it comes to managing your finances.
A credit card, when used expertly, is a major tool in this arsenal.
Just make sure you understand the power of what you’re wielding—because otherwise it goes from a springboard for your business to an anchor.