Don't Make It Personal – Why You Need A Business Credit Card
There are many incentives for new personal credit card holders.
- 0% balance transfer rates
- 0% purchase rates
- low long term balance transfer rates
- the possibility of earning points or air miles
- reductions on purchases
- travel insurance
With all these incentives it can be tempting for a business owner to fund the business using a personal credit card. However, this is rarely a good long term option. Here's why.
In the long term, interest rates on personal credit cards tend to be higher than those intended for businesses. A personal credit card makes it easy to run up debt and hard to separate business spending from personal spending. And if business matters do not go as planned, the card holder is personally liable for debts incurred on the credit card. In contrast, with a business credit card, the business is liable for debts instead of the person.
How To Choose Your Business Credit Card
All of these are good reasons to get a business credit card, but what should you look at when choosing a card? Here are some suggestions. One of the key aspects of choosing any credit card is the fees you are likely to pay. With business credit cards, there are two fees to consider. The first is the annual fee, which can be anything up to £75 depending on the card you choose. The second is the application fee charged by some card issuers. It may be worth shopping around, as waiving the application fee is commonly offered as an incentive to new business card holders.
A Question Of Interest
Next, it's worth looking for the best annual percentage rate (APR) you can get for your business credit card. APRs vary greatly among lenders. As with personal credit cards, the interest rate for cash withdrawals can be steep, so if this is how you intend to use your business credit card, it's worth a look. Finally, it’s worth looking at the length of the grace period – that's the time you have before interest is charged. This can be up to 56 days and is similar to the interest-free periods offered on personal credit cards.
Credit Card Management
Business credit cards can really help with managing cash flow. They allow business owners to pay for goods and services immediately, but repay the money up to 56 days later. They are also very useful for paying for business expenses such as travel and accommodation, car hire, eating out, corporate hospitality and so on.
Many businesses spend a lot of accounting time and accounting salaries on expense tracking. Since business credit card holders get an itemised statement with all transactions on the business account, this time can be saved and used elsewhere in the business. Best of all, with a business account, business owners can issue cards to several employees and still be sure they will only pay for business expenses.