Business credit card pros and cons

If you have a business, no doubt you have gotten business credit card offers in the mail or seen commercials advertising them on TV. Cash back, rewards, frequent flier miles, and low interest rates are all enticing offers designed to get small business owners to sign up for their business credit cards.

If you are seriously considering a business credit card, it is important that you know the advantages of one as well as the risks.

Some of the pros of a business credit card include:

Pros

• Some of the cards pay you back. Many small business credit cards are trying to draw customers in by offering incentives. These can include everything from a percentage of the money you spend back to airline miles to free meals and lodging while traveling. Look for business credit cards that will pay you back to use them. At the same time, however, check to see if the cards have a cap on the amount of money or perks you can get back each year, as some companies will place limits on them.


• Easier to expense and keep track of. Company and business credit cards are a good idea for companies that have employees who fill in expense reports and are reimbursed. A company credit card will help reduce the risk of credit card fraud, as you can better track how your employees are spending.

• High credit limits. While this may sound advantageous, many credit card companies take advantage of people and offer high lines of credit. Make sure you can cover the payments if you plan on opening credit cards to start your business, taking into account interest payments, which are often up to 20% and even more in some cases. Always make sure you are not getting more money than you can pay back.


• Exorbitant interest rates. Some business credit cards have exceptionally high interest rates. Let's say you open a small business credit card that has a 20% (not uncommon) interest rate and you keep a revolving balance of around $10,000 on it. That's $2,000 in interest alone you're paying each year. Make sure you are aware of the interest rates and realistically what they will be costing you each month and year. It's a good idea to get a card with the lowest APR, or annual interest rate, that you can find, particularly if you plan on carrying a balance month to month.


• Big penalties. If you are late on even one payment, most credit cards will hike up your interest rate to 28.99% and you will have to pay on time and never go over the amount for a full year before they lower the rate again.

If you are going to get a business credit card, you can keep things under control by:

• Paying off the balance each month. Your interest rate comes from the balance you carry. If you pay that balance off each month, you save the interest while still getting the perks of the card.


• Keep your cards paid down. Keep your business credit card(s) paid down, preferably below 30% of the credit limit. This will help make sure you can watch your payments.

As you can see, there are good and bad things about business credit cards. These tips will help you make the right decision for your company.