Credit Cards for Business.
It is no surprise that small businesses sign up for credit cards; this is because of the challenges of the business environment and the economy has a whole. A credit card for business can be a very essential form of financing for small business owners. Before we look at the factors to consider when getting a credit card, let us first break down what a credit card is, and its main purpose.
What is a credit card? A credit card is a payment card issued by a financial company, which avails the owner the opportunity to buy now and pay later. A credit card operates based on the holder’s promise to pay for the goods or services he bought on credit. Credit card can be a form of short term financing for small businesses to meet immediate demands for cash; a credit card allows the consumers a continuing balance of debt, subject to interests being charged.
What then is a business credit card? A business credit card is basically the same as a normal credit card; but compared to a normal credit card, a business credit card has a high limit and low interest rates. A major advantage of a business credit card is that in times of cash shortage for the business, a credit card could serve as an instant loan to service whatever obligation the business has, while improving cash flow.
Now that we have gotten that out of the way, let us look at some factors we should consider when getting a business credit card.
- Choose the right type of card: When getting a business credit card, you should identify purpose the credit card would aim to serve; you should carry out a thorough research on the type of card that would suit your business needs. There are many types of credit cards, so choosing the wrong one can prove to be detrimental to you and your business. Types of business credit cards include: corporate cards, charge cards (This type of card has no interest rate and no spending limits, but the balance must be paid off each month.),merchant cards, prepaid cards. Etc.
- Fees: It is advisable to go for credit cards with little or no fees, but some credit cards with fees have some added benefits included; this ranges from flexible payment options, to travel protection, to special discounts. If you decide to choose one with fees, you should weigh the cost with the benefits you hope to achieve and then decide if it would be worth it.
- Interest rates: Some credit card companies promise unbelievable interest rates and APR; when making a decision on this, be sure they are not promotional rates. Ensure you read the fine prints clearly and determine if they are promotional rates; and if yes, what the new rate would be after the promotional period.
- Credit Limits: A higher credit limit is usually best for a business, this is because the amount of available credit plays a major role in the business’s ability to make payments during periods of cash shortage, and also determines the credit utilization ratio of the business. With a high credit limit, it is easier for the business to easily pay for larger expenses while maintaining a favorable credit utilization ratio.
- Understand repayment terms: Default in payment negatively affects your credit score; when taking a business credit card, you should make research on the monthly minimums, grace periods if any, and the fees for late payments.
- Online Banking capability: Credit cards serve many functions, not just the typical paying for goods at services with a POS machine in stores. A credit card can pay for your business credit bills online, and transfer funds between accounts. Not all credit cards can perform these functions, so it is wise to research the functionalities of the credit cards you desire.