What to Look For in a Small-Business Credit Card

Wielded strategically, credit cards for small businesses can be your not-so-secret weapon to transform your company from a tiny operation run from your dining room table into a widespread entrepreneurial empire. With the tap of a card, you can access the resources you need to unleash your creativity and expand your customer base — without worrying about how you’ll make ends meet while your cash intake ebbs and flows. However, to make the best decision for your business needs, it’s also important to know the risks and fees associated with small business credit cards as well as alternative lending options.

Let’s learn more about how credit cards can benefit small businesses. And something to keep in mind along the way: Choosing a credit union small business credit card comes with a wealth of benefits and safeguards. Your local credit union can help you track your business spending, protect against unauthorized card use, and grow company credit apart from your personal credit history.

Pros and Cons of Credit Cards

Benefits of Credit Cards for Small Businesses

One of the biggest advantages of credit cards for small businesses is the convenience and flexibility you’ll have when making business-related purchases. 

Forget having to monitor cash-based transactions or separate business purchases made on your personal cards. Instead, your small business credit card makes it easy to track your business-related spending and can improve cash flow management.

If you choose a credit card with a rewards program, you may be able to earn points you can redeem for cash, items you need for your company, or other perks like airline miles. 

Using a credit card for small business spending also helps build your company’s credit history. Many business loans require both strong personal credit and for your business to have a solid background of creditworthiness. 

Choosing the Right Credit Card for Your Small Business

Choosing the right credit card for your small business will be a decision that hinges on a few key factors. Considerations for selecting the right credit card include:

There are several types of credit cards available for small businesses. But first, you must know how to compare credit card offers and select the best one for your company.

Credit cards with an annual fee but a relatively low-interest rate may be the best choice for small businesses that are just starting out and need to make some sizeable foundational purchases. Since you’ll likely pay interest on those larger purchases until the balance is paid off, you want the lowest interest rate.

Alternatively, credit cards with no or a low annual fee in exchange for a slightly higher interest rate might be better for established small businesses with a predictable monthly spend. This card type is ideal if you plan to pay off the balance every month, as you’ll then pay no interest.

Understanding Credit Card Fees and Charges

There are many different types of fees and charges associated with credit cards. The most visible are the annual fees and the interest rate. The annual fee plus the interest rate together equal the annual percentage rate, or APR, which is the true cost of having a business credit card.

Many credit cards for small businesses will have an introductory interest rate, which then goes up at the end of a promotional period. In addition, the lender may waive an annual fee for the first year and then institute it at the beginning of the following year. Other reasons your interest may go up is if you miss payments or fail to pay a minimum balance. 

You can avoid unnecessary fees and charges by paying close attention to the fine print when you obtain a small business credit card. The following tactics can help you avoid exorbitant credit card fees:

Best Practices for Credit Card Use in Small Businesses

Before using business credit cards, create a business-wide credit card policy outlining acceptable and unacceptable use. In addition, educating employees on the appropriate credit card use is critical, as they should use business credit cards only for approved business-related purchases. 

Be prepared to monitor and control business credit card spending. For example, initiate monthly accounting for every employee with access to your business’ credit cards, and match their reports to your credit card statements.

You’ll need to regularly review and assess credit card use to ensure that it aligns with your policies and that using business credit cards isn’t costing you more than the flexibility and convenience is worth. For example, if you are constantly hit with fees or have to track down unauthorized purchases, your business may not be mature enough for credit card use.

Risks of Credit Card Use for Small Businesses

Credit cards for small businesses come with an element of risk, especially if multiple people have cards or access to card numbers. One of the most common scenarios is credit card fraud.

Make sure everyone with access to a card complies with your company policies. Set spending limits and require authorization for purchases above set amounts. When an employee leaves your business, consider requesting new card numbers and/or setting new PINs if applicable.

Another concern associated with business credit card use is the potential for overreliance on credit cards. This can easily lead to out-of-control spending, increased credit card debt, missed or insufficient payments, and negative impacts on credit scores and business credit.

Alternatives to Credit Cards for Small Businesses

Several options exist for building your small business credit and leveraging the convenience of business payments without relying on credit cards. 

Electronic payment services are one way to make purchases using your business’s financial account information directly. This option may be viable if you can order most of what you need online.

If you need to make one or more large purchases, a business line of credit or business loan may be the better choice. These often have a lower interest rate than a credit card. However, the catch is that you may need an established credit history for your company to get approved.

Debit cards are ideal for making business-related purchases that don’t exceed your cash on hand. You should be able to use a debit card wherever credit cards are accepted, and the purchase amount will be deducted from your business checking account.

If you spend a lot of money on fuel for company vehicles or regularly purchase from large stores with internal charge cards, ask if those brands offer a credit card that reaps benefits like lower gas prices or purchase discounts. 

Credit Union Credit Cards for Small Businesses 

Remember, your local credit union could have the best options when choosing the right credit card for your small business. Member-owned credit unions often have less rigorous criteria for approving a business credit card. You’re also likely to find some of the lowest interest rates when you work with a credit union.

Credit union credit cards for small businesses can help you quickly build credit with the credit union. Regular, responsible use of your business credit card shows you are credit-worthy and could benefit you in the future if you need a business loan or financing for a company vehicle. 

Further Resources on What to Look For in a Small-Business Credit Card

Your small business can benefit greatly from a credit card, but choosing wisely is key. Here are some additional resources to help with your research on how credit cards can benefit small businesses:

Go Further with a Credit Union Credit Card

Choosing the right credit card for your small business, monitoring business credit card use, and leveraging the benefits of business credit cards is easier when you have guidance from your local credit union. Find a credit union near you for all of your business’s financial needs. 

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Did You Know?

Many credit unions offer favorable interest rates on credit cards for small businesses, with low fees and competitive APRs. In contrast to larger corporate banks, your local credit union connects you to your local community and supports your small businesses from the earliest days of its conception.

Find the right Credit Union for you

There are more than 5000 credit unions to choose from across the U.S.