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What is a Business Credit Card? its Types, Benefits & more

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Imagine you are a small business owner, Raj, running a successful catering service. Business is booming, but cash flow management is becoming a nightmare. However, with the increase in orders, you are finding it increasingly challenging to manage cash flow. From purchasing ingredients and supplies to covering unexpected expenses, the demands on your finances are growing. You have even had to dip into personal savings to keep things running smoothly. In such scenarios, a business credit card can be a game-changer.

 

But what is a business credit card, and how can it benefit your SME? In this guide, we will provide a detailed overview, including what they are, who can get one, how to manage debt, and more. So, let’s dive in!

 

What is a business credit card?

 

Definition and purpose:

A business credit card is a financial instrument created specifically to cover business-related expenses. Unlike personal ones, business credit cards are customised to address the specific requirements of companies. The key features are:

 

Higher credit limits:

They usually provide higher credit limits compared to personal cards, making them suitable for covering larger business expenditures.

 

Expense management tools:

Many business credit cards come with tools to track and categorise expenses, making bookkeeping simpler.

 

Employee cards:

You have the ability to distribute cards to employees, establish spending limits, and keep track of their expenses.

 

Rewards and incentives:

These cards frequently offer rewards and incentives designed specifically for business spending categories like office supplies, travel, and dining.

 

Differences from personal credit cards

 

Business credit cards differ from personal ones in several key areas, such as: 

 

Reporting:

Business credit cards report to business credit bureaus, helping build your score.


Rewards and benefits:

Business cards often offer rewards tailored to work needs, such as cashback on office supplies or travel benefits.


Liability:

These cards may have joint liability, meaning both the business and the individual cardholder are responsible for the debt.

 

How a business credit card works?

 

From everyday purchases to sophisticated expense management tools, here’s how it can revolutionise the way you handle your company’s expenditures.

 

Usage for purchases and expenses:

Businesses use them to pay for everyday expenses, such as office supplies, travel, and utilities. This helps in maintaining cash flow and leveraging the benefits of business credit cards like rewards and cash back.

 

Billing cycle and payment scheduling:

The billing cycle for a business credit card usually spans 30 days, after which a statement is generated. Payments must be made by a certain date, and paying on time is essential to avoid incurring interest charges.

 

Interest rates and fees:

They usually feature variable interest rates, calculated as the prime rate plus a margin. Fees may include annual, late payment, and foreign transaction fees. 

 

Expense tracking and management tools:

Many business credit cards offer online portals and mobile apps that categorise expenses, generate reports, and integrate with accounting software. This, in turn, simplifies financial management. 

 

Types of business credit cards

 

We understand that it can feel a bit overwhelming to navigate through the different types of cards available. Therefore, here is a simple guide to the top ones: 

 

Traditional business credit cards:

These cards provide fundamental features such as higher credit limits, expense management tools, and rewards programs tailored to business needs. They are ideal for established businesses with consistent cash flow.

 

Secured business credit cards:

Perfect for businesses with limited or poor credit history, these cards require a security deposit that acts as the credit limit. They help build credit while providing access to essential card features.

 

Charge cards:

These cards do not have a preset spending limit but require the balance to be paid in full each month. That is why they are suitable for businesses with strong cash flow. Plus, they often offer extensive rewards and benefits.

 

Rewards business credit cards:

These cards offer rewards in the form of points, cash back, or travel benefits. Therefore, they are ideal for businesses that have significant spending in specific categories. 

 

Who can get a business credit card?

 

Securing a business credit card is not just for large corporations. In this section, we will unveil the key factors that determine eligibility and the application process.

 

Eligibility criteria:

Generally, any business entity, including sole proprietorships, partnerships, LLCs, and corporations, can apply for a business credit card. Lenders typically look at both personal and work credit scores, your revenue, and the time the business has been operational.

 

Application process:

To apply, you will need to provide basic information about your work, such as the legal name, business address, and Tax Identification Number (TIN). Lenders may also require financial statements and details about your personal credit history.

 

Importance of a good credit score:

Both personal and business credit scores play a significant role in the approval process. A strong credit score can result in more favourable terms, including lower interest rates and higher credit limits.

 

Additional documentation:

Depending on the issuer, you might need to provide additional documentation. This includes business plans, projected revenue, and details about your operations. This allows lenders to evaluate the risk and determine your business’s creditworthiness.

 

How to pay off business credit card debt?

 

Managing business credit card debt effectively is crucial for maintaining financial health. Allow us to share some practical strategies below. 

 

Budgeting:

Draft a budget detailing your business expenses and income to effectively allocate funds for debt repayment. Regularly review and adjust this budget to accommodate changes in your financial situation.

 

Prioritising payments:

Focus on paying off high-interest debt first to minimise the total interest paid over time. This approach, called the avalanche method, can save you money over time.

 

Increasing payments:

Whenever you can, pay more than the minimum amount to quickly reduce the principal balance. This will significantly shorten the repayment period and lower interest costs.

 

Consolidating debt:

Think about consolidating multiple credit card debts into a single loan with a lower interest rate to simplify repayment. This can help you manage payments more easily and reduce overall interest.

 

Negotiating with creditors:

Struggling to manage payments? Reach out to your credit card issuer to negotiate lower interest rates or alternative repayment plans. Creditors are often willing to collaborate with businesses to prevent defaults.

 

Seeking professional help:

If the debt becomes unmanageable, consider consulting a financial advisor or a credit counselling service for guidance. These professionals provide strategies and resources to help you regain control of your finances.

 

How to get a credit card for a new business?

 

Starting a new business? We have listed down all the steps that can help you get a credit card.

 

Establishing business credit:

Before applying, ensure your business is registered, and you have a business bank account. Begin by applying for a secured business credit card or a small loan to establish your credit. Making regular and timely payments on these accounts will help build a positive credit history.

 

Research and compare:

Research different credit card options to find one that best meets your business needs. Consider factors like interest rates, fees, rewards, and extra benefits. Online comparison tools can help you evaluate various offers and select the most suitable one.

 

Preparing your application:

Collect essential documents, such as your business license, financial statements, and personal identification. Be ready to provide details about your business’s revenue and expenses.

 

Submitting the application:

Submit your application online or at a bank. Provide honest and thorough information to improve your chances of approval. After submission, you may need to wait a few days to a few weeks for the application to be processed.

 

Following up:

If your application is not approved, follow up with the issuer to understand the reasons. This feedback can help you identify and resolve any issues, increasing your chances of approval in the future.

 

Alternative options:

If traditional business credit cards are not an option, consider other financing methods. Consider options like small business loans, lines of credit, or merchant cash advances to support your business operations.

 

Conclusion

 

Business credit cards are indispensable for SMEs, offering higher credit limits, tailored rewards, and expense management tools that streamline operations and optimise cash flow. By using it responsibly, you can build a strong credit profile. Not only that, but you also open doors to better financing options and focus on growing your business. In today’s competitive market, the right business credit card provides the financial flexibility and support essential for your business’s success and growth.

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