For small business owners using business credit cards, responsible spending can mean major rewards for their companies. Business credit cards can earn owners money or benefits, and help them track expenditures, establish credit and improve cash flow.
David Hiller, a small business banking executive at SunTrust, says in general, aside from the rare instances where they would be charged credit card fees, business owners should put every business expense on these cards.
“Business owners should put as much of their normal operating expenses on the card as possible—as long as they’re able to pay the balance every month,” Hiller says. “Businesses often use their credit card for expenses like supplies, raw materials, inventory, travel, entertainment, etc. By doing this, businesses can earn 1 percent or greater cash back on their normal purchases. However, for large purchases that need to be financed over time, a line of credit or a term loan offers preferable interest rates and payment terms.”
If you’re responsible, the more you use your credit card, the more you can maximize the rewards, Hiller says.
Four benefits of business credit cards
1. Using a business credit card for every expense means better recordkeeping. These cards make it easy to track where your money is going, which in turn helps paint a better picture of the business’s fiscal health.
2. Rewards, whether via cash back or point accruement, can add up more quickly for business owners than with personal accounts. This is compounded when businesses activate employee credit cards.
3. In the long term, using a credit card can establish and improve credit for the business owner. That can help secure better interest rates in the future if you’re looking to expand and need to borrow.
4. If your business has regular expenses for supplies, a business credit card will allow you to defer payments for about 25 days and increase cash flow.
Three considerations for choosing the right card
1. Most cards come with stock features that benefit owners: no annual fees, options for employee cards, fraud protections and more.
“One big factor to weigh through all that is to look at the rewards program compared to what you want as a business owner and what you spend,” Hiller says.
Packages often come in the form of getting cash back or earning reward points. For cash back, you want to look for at least a 1 percent cash-back base rate, Hiller says. That functions as free money, and you can redeem it by putting the cash back either into your business or into a personal account. Meanwhile, the points program can earn things like gift cards, travel or other items that can be used by you or your employees.
2. When opening a card, look to get one from the bank where you have your primary checking account.
“That bank will value you and your deposit relationship when they look at your application,” Hiller says. “You’re not just a random person coming in.”
If you’ve established that solid relationship, Hiller says, you’re more likely to be approved for a higher credit line.
3. Lastly, if you travel for work, consider card-specific programs that can earn better rewards on things like gas or offer travel protection such as covering lost luggage or accidents.
Two areas to practice caution
1. If you’re spending on credit, you need to have a plan for paying it back.
“Be disciplined about what you’ve spent on your card and make sure that your revenue coming in can pay all your expenses each month, which is ideal,” Hiller says. “If there’s a shortfall, know how long it’s going to last and how you’re going to cover it. Major purchases or cash flow shortfalls that are expected to last more than a month or two can typically be financed more effectively through other credit products.”
2. If opting for employee business cards, owners should monitor and control the limits on what and how much employees spend. Those merchant and credit limits can help keep costs low while bolstering internal fraud protection.
Make a habit of responsible credit use for yourself and your employees, and everyone can reap the rewards.
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