It’s easy to get lost trying to find the right credit card for your business. Interest rates, spending limits, fees, rewards – there’s a lot of information available, and a plenty of companies trying to convince you their card is the perfect option. 

So, what do you really need to know, and what factors do you need to focus on?

Before getting into credit card terms and rewards, let’s first consider why you might want to use a card in the first place.

The benefits of using a business credit card

Business credit cards are a great option for companies looking to make purchases using short-term credit. They allow you to:

• Improve your business credit rating while minimizing the risk to your personal credit score.
• Enhance company cash flow with greater flexibility to make purchases on credit.
• Maintain a separation between business and personal finances, simplifying bookkeeping.
• Choose between a range of business-specific rewards and bonuses.

Generally speaking, business credit cards have higher credit limits and interest rates compared to personal cards, as well as fewer consumer protections. Interest rates are also higher than those associated with traditional loans. That’s because credit card debt is often unsecured, meaning you don’t have to provide collateral. Business credit cards are also easier to apply for than a traditional business loan.

Credit cards are good for day-to-day business expenses as long as you pay them off each month and maintain a credit utilization rate below 30%. Using more than 30% of your spending limit can have an adverse effect on your credit score.

Many businesses like to pay vendors with a credit card as the funds arrive faster than other methods, making it easier to manage cash flow. However, there are fees associated with accepting credit card payments, and some vendors refuse to accept them because of that.

Understanding business credit card terms and conditions

Credit card terms and conditions explain the rules and guidelines of the card issuer, and it’s vital you read and fully understand them before applying. Important factors to consider include:

• Credit limit: How much you can spend on the credit card before the card issuer cuts you off. The credit limit that a card issuer is willing to extend to your business will depend on its credit score. If you have a good history of paying your bills on time, the credit card company will offer higher limits. New businesses may struggle to get a good credit limit and may have to provide collateral in order to get a higher limit.
• Fees: Some cards charge an annual fee, and this is separate from any interest payments. It’s a flat fee paid once a year. Generally speaking, though, credit cards that charge annual fees offer good rewards programs – the higher the fee, the better the rewards program.
• Interest: The extra charge you’ll pay if you fail to meet your monthly credit card payments. Credit card interest is typically quoted as an annual percentage rate (APR) or the percentage that will be added to your debt each year. Again, a good credit score can help you get approved for lower interest rates. Credit card companies often entice new customers with an introductory low interest rate for a fixed period after issuing the card. This can be helpful if you’re planning a large purchase for the business and don’t want to apply for a loan. The best way to use a credit card is to pay it off in full each month and avoid paying interest altogether.

Finding the best credit card rewards for your business

Crad rewards are earned based on your spending and redeemed in a variety of ways, and the specifics depend on the card you choose. Some business cards allow you to redeem points for cash back, flights, hotels, and more. Others offer discounts on travel booked through the program itself. There are also programs that allow companies to transfer rewards to airline and hotel loyalty programs.

To make the most of the credit card rewards, you need to find a program that offers the best return based on your company’s spending habits. For example, if you mainly spend on everyday operations (supplies, utilities, etc.), it may be better to focus on cash back. In contrast, discounts or loyalty program points for flights and hotels make more sense if you travel a lot for business.

Break down your current expenses and estimate the amount you could earn using various rewards programs. Remember to always read the details, though. Some rewards programs look great at first glance but contain surprises, such as caps on the amount you can earn in a year or introductory offers that drop off significantly after a few months.

Finally, many credit cards offer additional benefits you may be able to take advantage of as well. These include:

• Travel protections such as accident insurance, trip cancellation insurance, or roadside assistance.
• Travel benefits like access to airport lounges, complimentary services, or hotel upgrades.
• Everyday protections including extended warranties or purchase protections.

Balancing the right factors when choosing a credit card

There is no simple answer to which credit card your business should apply for. Ultimately, you need to balance the interest, fees, and credit limit with the potential rewards on offer. While the potential upside of some rewards programs is enticing, remember that you’ll likely have to pay a higher annual fee.