8 questions to ask when choosing a business credit card

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8 questions to ask when choosing a business credit card


Looking for a business credit card but don't know which to choose? Ask yourself these eight questions and to help find a card that may benefit you and your business.

1. Why do you want a business card?

There are many reasons why you should consider using a business card, but the first question you need to ask is why you want one. Do you need the money and are you considering a loan, do you want to earn rewards, or are you looking for a way to track and manage your expenses? There isn't necessarily a right or wrong answer, but this can help you determine which benefits to focus on.

2. What type of rewards fit your habits?

If you're interested in earning rewards, you may want to figure out which type of rewards program best fits your needs and spending habits. Some business cards offer bonuses for typical business expenses, such as office supplies or phone service; others give bonuses for travel expenses. Cash back rewards can easily be redeemed for statement credits, but business owners who frequently travel may be better off with a travel rewards card.

3. What is the card's network?

You can further narrow down the list of business credit cards by considering whether or not the card's network matters. For example, if you work with a supplier that doesn't accept Discover or American Express, it probably makes more sense to choose a card from another issuer.

4. Will you hold a balance?

Maintaining a balance and subsequently having to make interest payments can be expensive. Brandon Baker, owner and head chef of the Loveletter Cakeshop in New York City, says that some business owners know how to manage their expenses well even when using a loan or credit card. But for others, he thinks the quick influx of cash can sometimes lead to wasteful practices such as hiring too many employees or spending money on ineffective marketing.

Baker took out a small bank loan when he started his business and now that the business is more established, he uses a credit card to earn rewards and pays off all the charges within a week.

If you are planning on holding a balance initially, you may want to look into a business card that offers zero interest on purchases made during an introductory period - which can range from several months to a year.

5. Do you need flexible payment terms?

Some business credit cards offer flexible payment terms, which can be very helpful for new businesses with irregular cash flow. For example, American Express (a Credit Karma marketing partner) offers the American Express Plum(R) card, which gives you up to 60 days to pay with no interest, but offers a 1.5 percent early pay discount on eligible purchases if you pay at least the minimum payment due within ten days of the statement closing.

6. What documents will the issuer need?

When applying for a business card, you may be asked to provide business-related documents, including documents filed with the state when you formed your company, proof of your Employer Identification Number and your business's address. Some issuers may also ask for a profit and loss statement or previous tax returns.

If you're a sole proprietor and don't have these documents, don't fret -- you may be able to apply using your Social Security number.

7. Do you need employee cards?

One of the big differences between personal credit cards and business credit cards is that business cards may allow business owners to request employee cards for free. Ask the issuer if this is the case, and what limitations you can put on employee cards.

For example, you may be able to set a spending limit on each card or even restrict purchases to specific stores. You may also be able to set up different levels of access to the account, which can be helpful if, say, you want your bookkeeper to pay the bills but not be able to make any changes to the account.

8. Should you consider using a personal card instead?

The line between personal and business cards can be blurred. Molly Day, vice president of public affairs for the National Small Business Association, says a personal card used exclusively for business expenses can be viewed as a business card for tax reasons. The card will retain its consumer protections from the 2009 Credit CARD Act, such as limits on retroactive interest rate increases, that aren't extended to business cards.

However, using a personal card for businesses can hurt your personal credit score because the credit scoring systems can't distinguish how personal cards are used. As such, business expenses will typically be included when your personal balance to available credit, or utilization rate, is calculated.

You also won't get the same benefits found on business cards, such as expense tracking tools or employee cards. Nor will you be building business credit separate from your personal credit.

But, there are more personal cards to choose from, so it may be easier to find a card that's a good fit for you.

Bottom Line

Before applying for a business card, consider why you want or need it. If earning rewards is the main reason and you won't hold a balance, consider personal credit cards as well since there are more rewards programs and cards to choose from. If you want employee cards and expense tracking tools, a business card will likely serve you better.

About the Author: Louis DeNicola is a personal finance writer and educator. In addition to being a contributing writer at Credit Karma, you can find his work on MSN Money, Cheapism, Business Insider and Daily Finance. When he's not revising his budget spreadsheet or looking for the latest and greatest rewards credit card, you might spot Louis at the rock climbing gym in Oakland, California.

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