What Are The Risks Of Using Business Credit Cards?

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Business credit cards offer a variety of enticing perks to companies that use them skillfully. But with those tempting rewards come a unique battery of risks that can catch unprepared businesses off guard.

Here are some of the risks that come with using business credit cards…

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Interest Rates

The most obvious risk you take when using business credit cards is accruing interest.

Business credit card APRs typically fall in the mid-to-high teens. If you carry a monthly balance on your business credit card, interest will begin to accrue on your account. This interest is an additional, and often unnecessary, business expense.

To figure out how much you’ll be spending in interest, divide your APR by 365. So, if your APR is 18 percent, your daily interest rate will be 0.0493 percent. In other words, if your balance on a given day is $1,000, you’ll accrue 49 cents in interest on that day.

As you can imagine, those small charges add up very quickly. Most carriers will offer a grace period to make payments without being charged interest, but you’ll need to keep an eye on your bill to see if you’re meeting them. Unlike personal credit cards, there’s no set, legally enforced interest-free window.

Bait & Switches

Personal credit cards are governed by the Credit CARD Act of 2009. This legislation ensures that cardholders get 21 days to pay their bills, won’t be subject to retroactive rate increases, will receive ample warning before rates are increased, and will have payments applied to their highest APR items first.

Unfortunately, those protections do not apply to business credit cards. That means credit card companies can change your rate, and even your billing date, with little warning. In a worse case scenario, this can leave you facing charges you aren’t prepared for or make it more burdensome to pay off standing debts.

This doesn’t necessarily mean your credit card company will be pulling shenanigans with your account, but you need to be on guard for it. Be especially wary of changes if you miss a payment, as they’ll often be used as a rationale for tinkering with your terms of service.

You’ll also want to be aware of less nefarious tactics like introductory offers. You may be expecting them to expire, but did you know your credit card company can revoke them at any time, for any reason?

Needless to say, keep an eye on your statements.

Affect On Your Credit Report

At this point, business credit cards are probably sounding like the wild frontier of revolving lines of credits. Unsurprisingly, this can carry over to credit reporting.

There’s no industry standard governing what bureaus your credit card activity is reported to, or if it’ll be reported at all.

This means that some companies will report your business credit card activity to commercial credit bureaus. Others will report it to consumer credit bureaus. Some will report it to both. Some will report it to neither.

So if you’re hoping to create a partition between your personal and business credit, you may have a hard time doing it with a business credit card. This can also make it difficult for you to use a business credit card to repair your personal credit.

If you’re concerned about how your business credit card usage shows up on credit reports, be sure to contact your credit card company and find out what their policy is.

Debt Responsibility

Depending on how your business is incorporated, you may or may not be personally liable for business debts in general.

Business credit cards, however, tend to require a personal guarantor on the account. That means that you are responsible for those debts should your business close. On the other hand, that also means you can treat that business debt as personal debt if you file for bankruptcy.

Final Thoughts

Keep in mind that these risks are a collection of worst case scenarios. Many companies maintain mutually beneficial relationships with their business credit card providers. Nevertheless, it is a poorly regulated segment of the credit card industry that comes with a number of dangerous pitfalls. Just don’t be caught unawares.

Looking for a convenient rundown of some of the most popular business cards? Check out our comparison chart.

Chris Motola

Chris Motola is an independent writer, journalist, programmer, and game designer who has mastered the art of using his laptop in no fewer than 541 positions, most of them unergonomic. When he’s not pushing keys or swiping screens, he’s probably out exploring urban or natural environs, experimenting in the kitchen, or delighting/annoying his friends with his ideas and theories.

Chris Motola

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Business Credit Card Rewards: Everything You Need To Know

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One of the biggest perks offered by business credit cards, other than convenience, is rewards. Gamed correctly, business credit card rewards can be a way to save money on your biggest expenses.

Not sure which rewards are right for your business? Wondering what kinds of expenses to use your card on? Not even sure what’s out there? Read on!

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What Are Business Credit Card Rewards?

Simply put, they’re incentives to use your card to make purchases. When you make a purchase on your card, you’ll be awarded points or cash for each dollar you’ve spent. The number and type of points awarded vary by card. In many cases, where you’re spending it matters too.

How Many Types Of Rewards Are There?

A lot. In fact, many business credit card rewards cater to a specific type of spending. Overall, you can break them down into two broad categories.

  • Cash: This is the simplest, and oldest, kind of reward program offered by business credit cards. Cash rewards accumulate as you make purchases on your credit card. You may, for example, earn 2 percent back on every purchase you make. Depending on your carrier, you’ll have the option to redeem the rewards automatically at specific times of year, when you reach reward thresholds, or when you request them. Cash rewards can be redeemed as checks, statement credit and, in some cases, as gift certificates.
  • Rewards: Other business credit cards don’t return cash, instead awarding points or frequent flyer miles to cardholders. These cards tend to cater to specific types of business. For example, businesses whose staff frequently travel may choose a card that awards flyer miles. A business that spends a lot on telecommunications, on the other hand, may choose a card that rewards expenditures on those expenses. Other reward programs are more general, presenting you with a diverse (but limited) array of rewards to spend your points on.

What Are Reward Tiers?

Not all business credit cards have reward tiers. Cash cards almost never have them, for example, but many reward cards do.

Reward-based cards use tiers to influence your spending habits. For example, the Chase Ink Business Preferred Credit card breaks its reward point system into two tiers. For each $1 you spend on travel, shipping purchases, telecommunications, and social media advertising, you’ll earn three reward points. Any other purchases you make will be compensated with one point per $1.

Most cards that use tiers will have two or three of them. The lowest tier almost always represents miscellaneous purchases.

How To Choose The Right Reward

Business credit cards, ideally, reward a specific kind of spending behavior. With that in mind, it’s best to consider which rewards best sync up with your expenses.

This means you’ll probably want to itemize your monthly business expenses to see where you’re spending your money. You’ll also want to get the cash value of the reward points offered by any rewards cards you are considering (expect a value somewhere around a cent or two).

To make a comparison, pretend you’ve put all of your monthly expenses on the credit card and calculate the cash value of the points (or cash back) you would get for making those purchases. So if you have $800 of expenses that qualify top tier points (3) and $1,000 of miscellaneous purchases, you’d be earning $34 worth of rewards each month or $408 per year.

If your expenses aren’t concentrated in any specific area, consider cash rewards. You may not get as big a multiplier on specific purchases, but you’ll often recoup a better value on your miscellaneous purchases. Not only that, but you can spend your cash return on whatever you want. Consider cash as “breadth” to rewards’ “depth.”

What Else Should You Factor Into Your Reward Calculations?

You didn’t think it would be quite that easy, did you? Business credit card terms feature a large number of asterisks and footnotes. Here are some things you should also consider when calculating a card’s reward potential:

  • Sign-up Bonus: Many business credit cards will offer an initial sign-up bonus. This is a one-time offer and usually requires you to spend a minimum amount of money in order to qualify.
  • Annual Fee: Some business credit cards charge an annual fee to keep the card active. You’ll want to deduct this amount from your yearly reward value. Note that many cards will waive the first year’s fee.
  • Reward Limits: While it might be fun to think of ways to earn an endless torrent of reward points, your carrier is one step ahead of you. Some carriers will limit the number of top tier points you can earn. Others may stop rewarding points or cash for the year after you hit a spending threshold of, say, $150,000.

Final Thoughts

Remember that your business credit card should match your existing spending habits. Don’t fall into the trap of thinking you should have a specific card just because it’s popular or even well-reviewed.

Need help getting started? Check out our 2018 business credit card comparisons.

Chris Motola

Chris Motola is an independent writer, journalist, programmer, and game designer who has mastered the art of using his laptop in no fewer than 541 positions, most of them unergonomic. When he’s not pushing keys or swiping screens, he’s probably out exploring urban or natural environs, experimenting in the kitchen, or delighting/annoying his friends with his ideas and theories.

Chris Motola

“”

The Dos And Don’ts Of Business Credit Cards

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Business credit cards offer one of the most convenient ways for your company to borrow money for goods and services without having to have your purchases scrutinized by a lending institution. Best of all, the revolving credit offered by your card means that as long as you pay off your card on a regular basis, you will always have access to a certain amount of money.

But like all forms of debt, business credit cards have downsides and come with fine print that can leave an unprepared business spending far more money than they should. Below, we’ll explore some of the do’s and don’ts of business credit cards.

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DO

Be Aware Of Terms & Fees

Credit cards come with a lot of fine print detailing everything from introductory APRs to how your reward points are calculated. The more transparent carriers will take pains to make you aware of the important details, but beware of asterisks lurking near numbers. Business credit cards don’t have as many protections as personal credit cards, so you’ll want to know if (and when) your carrier can raise your interest rates.

Choose The Type Of Rewards That Best Suit Your Business

Perks are a big part of what distinguishes one business card from another. With some rare exceptions, perks fall into one of three categories:

  • Money Back: For every x amount of money you spend on your credit card, you’ll get a percentage of the expenditures back as cash. Depending on the carrier, this money may be returned as a check, a bank deposit, a gift card, or credit to your account.
  • Rewards: This is a catch-all for a number of different reward schemes, where you’re credited x number of points for each dollar you’ve spent. These rewards can be redeemed for goods and services from selected vendors.
  • Mileage: If you do a lot of long-distance traveling, some business credit cards use frequent flyer miles as rewards. As with the other types of rewards, you’ll earn x number of miles for each dollar you spent.

Be Aware Of Reward Tiers

As important as selecting the right reward type for your business is understanding how to maximize your rewards. Rewards are usually broken up into two or three tiers (although some don’t have tiers). In most cases, the tiers correspond to the multiplier applied to each dollar you spend. You may, for example, earn 3 points per dollar you spend at restaurants, 2 points per dollar you spend at gas stations, and 1 point for each dollar you spend on other purchases.

Ideally, you’ll want to use your card for purchases that earn you the most reward points.

Calculate The Earning Potential Of Your Card

An easy way to figure out which card is best for you is to break down your monthly credit spending into categories like travel, telecommunications, and office equipment. You can then choose a card that will give you the biggest return on your expenses.

Create A Credit Card Policy If Your Employees Will Be Using It

Since business credit cards are for business expenses, the owner isn’t necessarily the only person who will be using it. You’ll want your employees to be aware of how and when to use the card, and how to maximize its value.

DON’T

Pay Too Much In Annual Fees

One of the easiest business credit card fees to avoid is the annual fee. Unlike most personal credit cards, business credit cards frequently require a yearly fee to keep active. These fees usually range from ten to a few hundred dollars. Many cards will waive the first year’s fees, so make sure you know what you’ll be paying over the long term.

Leave Balances On Your Card Longer Than You Have To

You can file this under general credit card advice, but it’s worth remembering: the longer the cost of an item remains on your credit card, the more that item effectively costs. Why would you pay a higher price than you have to? And best of all, you’re still earning rewards!

Use Your Card Recklessly Just To Earn Rewards

As nice as the rewards are, they can be a trap if you adopt the wrong mindset. Running up unmanageable balances in the hopes of maximizing your rewards points will leave you with a net loss.

Use Your Business Card For Personal Expenses

You won’t get in trouble for it, but it’s a best practice to avoid mixing personal and business expenses. At best, it’ll complicate your bookkeeping. If you’re running a small sole proprietorship with minimal expenses, you may want to just use your personal credit card.

Ignore Prerequisites For Sign-Up Bonuses

Many business credit cards offer sign-up bonuses. In most cases, you’ll need to spend a minimal amount of money before those sign-up bonuses kick in. Factor them into your calculations.

Final Thoughts

A business credit card can be a powerful tool for your business. For a side-by-side comparison of popular cards, check out our 2018 business credit card feature.

Chris Motola

Chris Motola is an independent writer, journalist, programmer, and game designer who has mastered the art of using his laptop in no fewer than 541 positions, most of them unergonomic. When he’s not pushing keys or swiping screens, he’s probably out exploring urban or natural environs, experimenting in the kitchen, or delighting/annoying his friends with his ideas and theories.

Chris Motola

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