What do the best business credit cards have in common?
The best cards all feature favorable balance transfer options, low fees, high limits, rewards options (e.g., cash back offers, airline miles, free hotel nights, or rewards points), and premium services. The optimal package of these features, and the overall cost, differs from business to business.
All business credit cards offer a convenient way of financing short-term business expenses at an affordable cost. After that, the differences outweigh the similarities. For example, one card may feature a low interest rate but very restrictive underwriting, meaning that only applicants with excellent credit will be accepted. If your credit is less than stellar, then that card would not be the best choice. Similarly, if a small business prefers cash back to air miles credits, then a business card with a great frequent flyer program would be suboptimal compared to a different card with modest cash back features. The market for business credit cards is highly competitive, and the various credit suppliers tailor the features of their cards to meet these diverse preferences.
The best card is the one that meets the needs of the credit card holder, and those needs are different from one organization to the next. The wants and needs of a business with five employees differ from the wants and needs of a business with 250 employees. Regardless of the bells and whistles offered, the credit card company has to earn a profit. The more perks or rewards included on the card, the higher the cost to the credit card company. They build those costs into the program somewhere, so cardholders should be selective when choosing cards, and should focus on those cards that offer terms and services that are most valuable to the business.
What tips do you have for someone looking for the best possible business credit card?
First, sit down with a pencil and blank sheet of paper and clearly spell out what features are truly important to you and to your business.
- If you plan to pay off the card every single month without fail, then the interest rate should not be that important to you. You may also want to consider charge cards rather than credit cards, if that is the case.
- If you anticipate carrying a credit card balance at any time during the year, then the interest rate should be a consideration. Rates differ from card to card, and some cards with low rates may make up the profit difference by charging higher fees. In addition, you should pay attention to the mechanics of the billing cycle to minimize the interest charges.
- While charge cards typically carry annual fees, they may have other benefits that may more than make up for the annual fee. For example, some cards offer complimentary access to airport lounges or other travel perks. The additional fee may be more than offset by the increased productivity of the card user, especially one that travels extensively.
- Credit limits are an important consideration for some cardholders. The higher the limit, all else held constant, the more favorable the impact on the business’s credit score. If your business purchases average $5,000 per month, then a limit of $15,000 is better than a limit of $10,000, because your utilization is 33 percent in the first instance versus 50 percent in the second instance. The percentage of credit being used is a consideration in calculating a business’s credit score.
- Over-the-limit fees and late fees may be important for some businesses and completely irrelevant to others. If those fees matter to your business, then consider them in your analysis.
- Does the card issuer require a personal guaranty for the business card? What are the credit score requirements? The more restrictive the underwriting, the lower the price, all else held constant.
- Are cashback rewards more of an incentive than reward points or airline miles? Reward points are good, but cashback is more flexible. There may also be some types of cashback offers that offer greater utility to one business than another. I rarely travel by air, so even the most generous air miles card feature has little utility for me, but I can always use the cash rewards. Conversely, a business acquaintance spends 20 days a month on the road, and the free hotel stays that he earns each month from his business credit card are far greater than the cashback he would earn from using a different card.
- Sign-up bonuses should be considered when evaluating business cards, but glossy sign-up bonuses do not make up for low-quality ongoing reward programs. The sign-up bonuses are just one consideration, but should be part of the evaluation.
- How important is the reputation of the card issuer? Some financial services firms may have a reputation for being more flexible than others. Additionally, your business may have other accounts with the card issuer, and there may be complimentary rewards for having multiple types of business accounts through the same institution.
- Read carefully through the fine print of any introductory offers to ensure that you understand the rewards system works.
Once you have identified the features that are important to your business situation, use the internet to identify the deals that best match your preferences. There are multiple websites that can make a side-by-side direct comparison between multiple cards. If you have already done your homework and have a good feel for the features that are important to you, then the comparison sites can help you to zoom in on the card or cards that best suit your business need
Is a personal credit card ever the best credit card for business use?
Although business credit or charge cards are preferable to personal credit or charge cards in most situations, there are always situations that might favor a personal card over a business card. Personal cards have stronger consumer protections that limit the ability of the lender to charge late fees or to increase the card’s APR. Those consumer protections are not typically applied to business cards, although card issuers may provide them anyway. The rewards for a specific personal card may be more advantageous than comparable business cards. The business’ purchasing pattern may suggest one type of card over the other. For example, some small service businesses have minimal credit or charge card activity during the year, and it might be simpler to just charge those expenses on a personal card and be reimbursed by the firm.
For a sole proprietorship, the convenience factor of using an existing card may outweigh the business rationale for establishing and using a business card. However, one of the key reasons to incorporate a small business is to separate the business liabilities from the personal liabilities of the business owner, and using a personal credit card to charge business expenses may blur the line between the business and the business owner. The rewards systems for business cards are more likely to be tailored towards business users than personal users. The simplicity of having all business expenses flow through the business card separately from personal expenses reduces the complexity of the record keeping as well. Therefore, for a host of reasons, business cards are typically preferred over personal cards for small businesses. Make your decision based on what works best for your personal situation.
Do you expect the best business credit cards on the market to become more or less attractive over the next 12 months?
There is significant competition for business cards, and a higher level of competition among lenders that should make business cards more attractive rather than less attractive going into 2018. Interest rates will continue to rise as the Federal Reserve implements its interest rate normalization program, which may or may not affect individual business credit cards. There is also an industry-wide movement towards incorporating mobile payments technology into the credit card business. That may make it easier for small business credit card holders to manage their personal and business card transactions.
Do any issuers in particular have a reputation for offering the best business credit cards?
If you google “What are the best business credit cards,” you will find that there are many different opinions from many different sources. Some of the raters apply complex algorithms, while others use more subjective measures. However, the value of the card is in the eye of the beholder. For example, the Chase Ink Business Preferred Credit Card is typically included in the top 10 lists of business cards for 2017. The card comes with a generous reward system coupled with a low fee structure and a host of business features, such as premium travel benefits, free cards for employees, and no foreign transactions fees
However, those features are not necessarily ideal for all cardholders. If you operate a small business in small-town America and have limited travel, the rewards benefits may add zero value to your business. Additionally, the interest rate may be relatively high for those cardholders with less than stellar credit. A great deal of this card’s appeal, according to the various rating sites, is the high value sign-up bonuses, which are a one-time event and subject to change in the future.
The Capital One Spark Card is also frequently found in these top 10 lists, and features lower minimum credit requirements. American Express also has multiple business cards with different features. So, the “best business card” really depends on the needs and wants of a particular business. The best business credit card is the one that provides the most benefit to your business, and that means that you will have to do your homework to make sure that it is the best card for you.