What to consider when selecting a credit card for your business
Did you know there are over 2.5 million actively trading businesses in Australia? It makes sense to run a business, primarily if you can provide an excellent product range or service offering that fills a gap in the market.
A huge part of running a business is making sound financial decisions. Without good business sense, you can face dire straits or even bankruptcy. Some business owners employ dedicated accountants, bookkeepers and financial analysts to provide this essential function. But others, due to the scale of the business, need to manage the money themselves, especially when just starting out. This can include selecting a credit card for your business.
This helpful article will share what you should consider when selecting a credit card for regular purchases related to your business. Read on to learn more.
Fee structures with business credit cards
Annual fees can veer into hundreds of dollars, which is money that’s not ending up either in your pocket or funnelled back into the business. As you need a credit card to purchase goods, supplies and services for your business, it makes sense to secure business credit cards with low or no fees.
Other fees to watch out for are international transaction fees, interest rate fees and additional cardholder fees – a particularly important one for business owners who plan on giving business credit cards to other members of their team.
Consider a rewards points credit card
Another tip is to identify the best rewards credit card that’s available for your business. These premium credit cards offer you bonus rewards points for your business spending. Some rewards cards even offer airline frequent flyer points that can be redeemed for flights and travel expenses. Other reward credit cards offer points that can be spent on goods online, put towards gift cards with a selection of retailers, or redeemed for cash back.
A rewards credit card is a good option for business owners who want to get more value with every dollar that they spend. As you’ll be spending money on the business anyway, why not get something back for all those regular expenses? If you have a high annual turnover, this is a savvy financial tip when it comes to selecting a credit card for your business.
New business? Consider a low-interest rate credit card
There are a range of different credit cards available on the market. The high-end options offer plenty of different benefits, such as purchase protection, rewards, insurance on purchases, and other practical perks. However, these cards will often have high interest rates of around 19-20%, to offset the benefits the lenders offer. That way, the credit card provider can still make a healthy profit while providing the perks.
However, all banks and loan providers want to provide credit card products to suit different types of customers. This means that for every fancy, benefit-laden card, there’s another credit card with a lower interest rate that offers fewer perks or benefits. These cards tend to have interest rates in the low teens, up to 15%. This means that you’ll pay less interest on your purchases when compared to a premium card with all the bells and whistles. This might be the ideal credit card for your business if you’ve just launched and are only breaking even or struggling to stay in the black. If you fail to pay off your balance at the end of each month, you’ll incur interest charges, but they won’t be as steep compared to a premium card.
Think about the credit limit
Finally, when applying for a credit card for your business, it’s imperative that you set a reasonable limit that you know you can afford, based on the performance of your enterprise. If you’re keeping healthy business records, you should know what your average monthly spend is on the various goods, products and services that you need to keep your business running. Then, set your credit card limit accordingly.
The last thing you want is a higher limit that can tempt you into unnecessary purchases that the business can’t afford to pay back in time. For instance, if you know your monthly expenses are $5,000, you may want a card with a $10,000 limit so you have a buffer just in case anything unexpected pops up.
****
Be sure to make all these considerations when selecting a credit card for your business. That way, you can make an informed decision when designing credit spending strategies for yourself and your wider management team.
Just remember not to be swayed by attractive offers and deals if they aren’t relevant to your business, or if they’re followed by high interest rates and hidden fees. Carefully consider the pros and cons of each type of card before committing to the right one for your business. And remember, if a credit card isn’t working for you or your business – don’t be afraid to swap it out.
