By AMANDA ABELLA
If you've ever tried to get a business loan from a bank, you may have realized it's not that easy. According to a 2014 survey conducted by the Federal Reserve Bank of New York, banks aren't lending money as often to small Main Street entrepreneurs.
Many business owners have begun to look into business credit cards as an easier way to access capital, which is wealth in the form of money or assets that is earmarked for investment or starting a company.
The National Small Business Association (NSBA), a small business advocacy group in Washington D.C., reported that at least 37 percent of business owners who responded to a 2012 survey relied on credit cards as a form of financing in the previous six months, showing that business credit cards may be keeping many small businesses financially afloat.
But how can you choose the right business credit card for your situation? Here are three things to consider.
What benefits come with the card?
Wondering about the difference between a business card and a regular credit card? "The reality is there isn't much difference between the two," says small business expert and accountant, Eric Nisall. "They both affect your credit in a similar way and they both look at your personal credit history in order to get approval."
However, business cards often come with business-oriented perks, such as cash back on office supplies, travel expenses and payments to your cellphone provider. These perks differ from consumer cards, which tend to offer cash back for more personal expenses such as entertainment and groceries.
Business credit cards also often have higher credit limits because businesses tend to charge a lot more than consumers do.
Of course, not all rewards and points are created equal, so you'll want to weigh your options to see which card best fits your business. For example, if you travel frequently for work, you may be better off with a card that allows you to accumulate points for travel.
What's the Annual Percentage Rate (APR)?
While business credit cards are generally easier to get than loans, they also come with one major con: They're usually more expensive than business loans.
According to the federal Small Business Administration (SBA), business loan repayment terms, such as the minimum payment, are calculated based on the principal (the money owed) plus the interest rate.
The SBA reported that, in 2013, minimum payments on a business loan were roughly between one and a half to two percent of the principal and the average interest rate for a business loan was prime plus three to five percent.
Business credit cards, on the other hand, have higher minimum payments (often up to three percent of the principal) and the interest rates could be higher depending on your personal credit history and the lender.
According to the NSBA, business owners in 2013 paid an average APR of 15.6 percent, with some business owners paying upwards of 20 percent.
To make matters more complicated, the CARD Act of 2009, which offers some consumer protections against credit card issuer practices, doesn't apply to business credit cards.
"Small business credit card holders can still have their interest rates adjusted as often and by as much as the banks want to raise them," Nisall says.
Are there any fees?
In addition to seeking out the best interest rate possible, you'll also want to keep a lookout for any fees associated with your credit card. Even if you use your business credit card responsibly, fees can quickly add up if you aren't careful.
For example, ideally you want a card that has no annual fee. Some business credit cards waive the fee for the first year but charge an annual fee for any additional year.
If there's an annual fee, weigh the benefits you'd receive against the fee payment to determine whether it's worth applying for.
If you have to do business abroad, you'll also want to make sure your business credit card doesn't have a foreign transaction fee.
Other fees you should look out for include penalty fees and late payment fees.
Business credit cards can be a great option for accessing capital and saving money on business expenses, but they typically come with higher interest rates and fees than standard business loans. Check out our comparison of some of the best business credit cards to help you make the best decision for you and your business.
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