SME Tips: Business Credit Cards Explained

Business Credit Card applications can be frightening. It’s hard to tell just what you need, what questions to ask and how to judge between different cards. The TFG team did a deep dive into business credit cards as a form of working capital and cash flow management. Here’s what you might want to consider if you’re applying for business credit.

Applying for a Business Credit Card: Here’s What You Need to Know

Important ‘Keywords’ in Credit Card Terminology

Let’s start with some terminology. Some of these terms may be very familiar, but there are some nuances which we’ve clarified below.

Interest/APR

This is an amount the credit card company charges you for the loan of the money. APR is the Annual Percentage Rate which is multiplied by the amount you owe to find amount they charge you every year. But remember, they calculate this monthly, so as a rough guide, divide the percentage by 12 before multiplying to get your monthly charge.

Annual Fee

An additional charge simply to have the card. Some cards have no annual fee, others have a small one, and a few have larger fees. Usually a larger fee is associated with some benefit, but check to be sure.

Credit Limit

The amount of money you can charge to the card. Going over this amount can cost you extra.

Credit Score/Credit Report/Credit History

A rating of how good your credit is. In other words, how reliable you are at paying your bills. The credit card company uses this to decide how risky it is to give you a card.

Rewards

Bonuses you earn by using the card to purchase things.

Promotions

Discounts or gifts that come with owning the card. Some are extra rewards when you sign up. Some are discounts on purchases.

Fees and Charges

Additional costs that aren’t the interest or the annual fee. Late payment fees or charges for being over your credit limit are examples of these.

How A Credit Card Actually Works

People can be confused about what a credit card really is. It’s not exactly a loan. It’s not the same as a debit card or even a business bank account. So what is it?

A credit card essentially acts like a line of credit. It has a ‘credit’ limit, but you can use as much or as little as you like within that given limit, paying back only what you use. If you pay all of it back before the agreed time period, you won’t owe any interest back to your credit card company, but if you don’t, you pay interest on the outstanding balance. Any minimum payments are calculated on the amount of money you have used.

Why Should I Have One?

A business credit card helps you build good credit, which might also help your business get access to larger business loans or overdrafts. Some business credit cards also include promotions or rewards programs giving you discounts or even cash back awards. Other credit cards act as an emergency fund when you need money right away.

What Do I Need To Complete My Application?

To apply for a business credit card, you would need to provide personal and company information, including name, date of birth, address, etc. For most reputable providers, there is infrastructure in place to look up your credit report and credit score quickly once they have your identification information. So don’t worry too much about what to bring with you, or in the case of online applications, what you need to find to apply online for a credit card.

How Do I Choose?

One of the toughest questions are which credit card to pick. There are hundreds, thousands, of cards to choose from, with constantly changing rates, rules, and promotions. Start with the basics.

  • Interest Rate: Which card offers the best interest rate? Best is almost always the lowest rate, but be sure you are looking at the right information. Many cards now offer a lower rate to start, then move to a higher one after some period of time. They can also offer that low rate on transfers from other cards, but there may be additional rules, so read the material carefully.
  • Annual Fee: Compare how much it costs each year to keep the card. Many are free, some have a minimal charge, others have a surprisingly large fee. Depending on what else the card offers, the cheaper the better, but some with a large fee offer promotions which are more than worth the cost. If the fee is the cost of a night in an expensive hotel, but the card offers you two free nights a year, it can be worth it.
  • Sign up bonuses: Are there any promotional offers for when you sign up that make the card more worthwhile than it appears on the surface? A cash bonus on acceptance can mean your first purchase is much less than expected.
  • Ongoing Promotions: What does the card offer after you have it? Discounts on purchases? Cashback incentives? Reward points? Depending on your usage, these could be worth a higher interest rate or a higher annual fee.
  • Use a comparison site: There are sites available which show many cards side by side, with helpful guides on choosing the right one. Use them. They may even let you apply for your chosen card right on the site.

Read the Fine Print

This might be the most important piece of advice of all. Know what you are getting. Read the information provided, all of it. Make sure there are no hidden rules that will make the card of less use than you expected. Understand how fees are applied, when your payments are due, whether your interest is permanently fixed or varies. Know everything you can before you make your decision to apply.

Credit cards are useful, versatile, and convenient. But make sure you do your research first and choose the best card to fit your needs, while minimizing your expense. You’ll be happy you did. Was this article helpful? Leave us a comment with your thoughts or questions in the section below.

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Summary
SME Tips: Business Credit Cards Explained
Article Name
SME Tips: Business Credit Cards Explained
Description
Business Credit Card applications can be frightening. It’s hard to tell just what you need, what questions to ask and how to judge between different cards. The TFG team did a deep dive into business credit cards as a form of working capital and cash flow management. Here's what you might want to consider if you're applying for business credit.
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Trade Finance Global