Everything You Need to Know Before You Apply for a Business Credit Card

Business credit cards can offer a wide range of benefits to small business owners, but beware: not all credit cards are created equally. From different fees, interest rates, repayment schedules, and conditions, it seems as though there’s an endless number of factors to take into consideration first.

Understanding the ins and outs of credit cards can prevent you from racking up serious debt, not to mention saving you from obtaining a bad credit score. Thankfully, we’ve compiled our most useful advice below.

Here’s everything you need to know before you apply for a business credit card.

What is a Business Credit Card?

A business credit card can be likened to a personal credit card, in the sense that it allows you to purchase goods or services on credit. This assigned credit limit will depend on the amount your card issuer has approved. One of the main reasons why an individual may apply for a business credit card is to keep their personal and business expenses separate.

The 3 Types of Business Credit Cards

Remember how we mentioned that not all credit cards are equal? There are various types of credit cards on the market, all of which have different rewards, terms, and conditions. In order to determine which card is best for your SME, it’s vital you know the differences between each contender. The three main card types include:

Credit cards: involve credit that can be rolled-over from month-to-month. Although the credit doesn’t have to be paid in full, it still incurs interest charges over the period it is left unpaid.

Debit cards: are linked directly to a bank account and debit the money you spend from this source. As a result, (and unlike credit cards) you can only spend the money you actually have.

Charge cards: these are similar to a credit card, however the amount owing must be paid in full when a statement is issued. Failure to do so will result in significant late fees.

Furthermore, these cards will differ in how you make repayments, as well as in what rewards and benefits they can offer for your business. Usually, a card will offer at least one of the following:

Low interest rate: For those wishing to carry over their amount owing from month-to-month (whilst keeping the amount of interest paid to a minimum), a low-interest rate card may be ideal.

Interest-free period: Some business credit cards will offer a period in which the card holder doesn’t have to pay interest on their purchases. This is particularly beneficial for SMEs needing assistance with short-term cashflow.

Awards: Another popular type of credit card is one which offers business awards. Although these usually have higher annual fees than their counterparts, an award card may be well-suited to those who will want to pay-off their total balance owing each month, whilst reaping some extra rewards (such as points to spend on goods and services).

The Differences Between a Business Credit Card and a Personal Credit Card

While a credit card for your business will likely look and feel like a personal credit card, the two also contain many differences. The most notable of these is the application process, as your issuer may ask you for the following criteria relating to your business:

  • ABN Number
  • Your accountant details
  • Two completed quarterly BAS statements
  • Your merchant details (if applicable)

When applying for a personal credit card, on the other hand, you will be asked to provide details relating to your identification, proof of income, superannuation, and/or rental properties. In other words, a business credit card application is made on behalf of your business, whereas a personal credit card application relates to you as an individual.

Additionally, business credit cards can contain many more cardholders than a personal credit card may allow. While most personal credit card issuers will allow 1-3 cardholders, a business credit card can have anywhere up to 99 cardholders in some cases! Although this figure is aimed at large corporations, SMEs can also benefit from having multiple employees as cardholders.

Lastly, if you use your business credit card for business purposes only, then the annual fee can be tax deductable. It is always best to confirm this with your accountant before lodging your tax return.

Common Business Credit Card Mistakes to Avoid

Even if your business already uses a credit card, you can still benefit from familiarising yourself with these four common business credit card mistakes. After all, failing to follow best practices could lead to a bed credit score, not to mention an overwhelming amount of debt that could sink your business.

1. Being late with your repayments

While it might not seem like a big deal to miss a repayment once in a blue moon, it can cause more damage than you think. Late repayments often result in late fees, putting you further out-of-pocket. Additionally, late or missed repayments can damage your credit score, potentially limiting your business funding opportunities down the track. Avoid late repayments by setting up automatic credit card repayments each month.

2. Using the credit card for cash withdrawals

This will attract a much higher interest rate, known as the cash advance rate. To avoid this altogether, simply do not use your credit card for cash withdrawals if you can avoid it.

3. Having too many cardholders than necessary

Although we mentioned that some business credit card issuers will allow up to 99 cardholders, it really isn’t necessary for small to medium enterprises to take advantage of this. The trick is to ensure you limit the number of cardholders to only the amount you need, as for every employee that has access to a business credit card, you’ll have to monitor and manage their expenses.

4. Not taking advantage of other benefits and rewards

Whether it’s bonus points, business tax deductions, or other additional rewards, it’s always best to familiarise yourself with what your credit card can offer so you don’t miss out on any added benefits. We all want extra bang for our buck, so ensure you’re taking advantage of everything positive that your small business credit card has to offer.

Armed with this key information about business credit cards, you can now make more informed decisions regarding financing your SME.

Does your company utilise business credit cards? We’d love to hear about your experiences below.

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