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Everything You Need to Know About A Business Credit Card

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Contents

Everything You Need to Know About A Business Credit Card 4

The Benefits of a Business Credit Card Include: 6

The Potential Pitfalls of Having a Business Credit Card May Include: 7

Business Credit Card Features and Rewards 9

How to Choose a Business Credit Card to Suit Your Needs: 12

The Latest Legislation 13

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Everything You Need to Know About A Business Credit Card

According to a 2012 Access to Capital Survey by the National Small Business Association (NSBA), 31% of small business owners with up to 50 employees reported using credit cards to finance their company

in the last 12 months to meet capital needs.

A business credit card can provide you with the buying power your business requires and help you track business expenses. It can also help you keep business and personal expenses separate. Business credit cards tend to carry higher annual percentage rates (APRs) than most consumer credit cards, so look for a reasonable rate if you plan to carry a balance.

Business credit cards tend to have higher limits than personal credit cards, while offering business-specific perks and rewards. Many business credit cards reward you for your business purchases in the form of cash back or airline miles. So if you travel a lot for business, it makes sense to sign up for a card that has a flexible travel program with no blackout days or earns frequent flier miles, or gives rewards and discounts at gas stations, hotels, and restaurants.

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A recent article in the Entrepreneur advises:

Use different types of cards for different types of transactions. For example, a business-rewards credit card might be best for everyday expenses, while a zero-interest personal card might be the best for funding.”

Also, securing future financing and maintaining good relationships with your business partners and lenders may depend on how strong your company credit score is.

Securing future financing and maintaining good relationships with your business partners and lenders may depend on how strong your company credit score is.

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The benefits of a business credit card include:

¾ Provides buying power ¾ Helps establish creditworthiness (which can secure future financing) ¾ Helps with company record-keeping and producing financial reports

by itemizing expenses and purchases in detail and by category ¾ Separates personal and business finances ¾ Provides rewards and perks tailored specifically to businesses ¾ Has higher credit limits than many consumer credit cards ¾ Some cards allow you to set individual credit limits for each employee

Some cards allow you to set individual credit limits for each employee

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The potential pitfalls of having a business credit card may include:

¾ Increased fees and rates: Business credit cards are exempted from the 2009 CARD Act, so while consumers are protected from certain fees and APR increases, business credit card holders aren’t.

¾ Business credit cards often carry higher APRs. ¾ Even though personal and business lines of credit will be

separate, most institutions will require a personal credit check when you apply for a business credit card.

¾ If you sign a personal guarantee, and your business can’t pay the debt, your personal credit score will be affected since you will be personally liable for that debt.

If you sign a personal guarantee, and your business can’t pay the debt, your personal credit score will be affected since you will be personally liable for that debt.

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With some cards, your payment activity is reported to both consumer and business credit reporting agencies. Marco Carbajo, CEO of the Business Credit Insiders Circle, writes in a blog post on the Small Business Administration website that this type of card “helps establish company creditworthiness because it reports to several business credit agencies [...] The downfall is that your company’s revolving credit card debt is still reporting on your consumer credit reports, resulting in a negative impact on your personal credit scores.”

A May 2011 report by the Pew Research Center, “U.S. Households at Risk From Business Credit Cards,” showed these numbers:

¾ 80% of business cards can change terms – including raising rates on existing balances -- with no right to opt out

¾ 67% of business cards had penalty rates for late payments or over-limit transactions. The median penalty APR was 29.4%

¾ 73% of business cards included a late fee (median amount: $39) ¾ 67% of business cards included an over-limit fee (median amount: $39) ¾ Median APR on purchases: 13.24% (lowest

advertised)/18.12% (highest advertised) ¾ 41% of business credit cards charge an annual fee (median $67).

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Business credit card features and rewards

As the business credit card comparison charts on CreditCards.com and Credit.com show, these are the typical business plan features card companies offer:

The best business credit card plans offer:

¾ No annual fee (or no annual fee during the first year) ¾ 0% intro APR on all purchases (temporary offers w/expiration date) ¾ Online quarterly and year-end summary reports ¾ Eligibility for an automatic credit line increase ¾ $0 fraud liability if your card is lost or stolen ¾ Employee cards at no additional cost ¾ You control the credit limits

The best business credit card plans offer No annual fee (or no annual fee during the first year) & 0% intro APR on all purchases (temporary offers w/expiration date)

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Common reward programs for business credit cards:

¾ Cash bonuses if you sign up for employee cards or spend a certain amount within a certain time (for example: $100 cash bonus if you spend $1,000 in the first three months). You can also earn points instead of cash bonuses with some cards

¾ Cash back (1% to 5%) from select providers ¾ Special rewards for purchases of everything from airfare and

gasoline to hardware and software, advertising, supplies and shipping, to charges for restaurants, hotels, concierge services, and wireless, phone, cable, and TV services

¾ Ability to redeem cash rewards anytime, for any amount; and to set up automatic redemption for eligible purchases

Common reward programs for business credit cards include Cash bonuses if you sign up for employee cards or spend a certain amount within a certain time (for example: $100 cash bonus if you spend $1,000 in the first three months). You can also earn points instead of cash bonuses with some cards.

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Natalie Rutledge at LowCards.com provides some advice on how to best use your credit card rewards. Should you spend them all at once or save for later? Should you convert them to cash or save them for online purchases? Natalie offers many good suggestions.

Make sure you know which of your rewards programs have expiration dates -- read the fine print or contact your credit card provider. Also, make sure you know exactly how your reward programs work -- whether you can get cash or use points only; online only or in physical stores too.

If you have more than one credit card, find out if you can combine rewards points between companies. Rutledge also advises you to take advantage of bonus points given throughout the year. “These are excellent opportunities to earn accelerated rewards,” she notes.

Make sure you know exactly how your reward programs work -- whether you can get cash or use points only; online only or in physical stores too.

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How to choose a business credit card to suit your needs:

¾ Compare interest rates, annual fees, and rewards programs of various credit cards. CreditCards.com, CardRatings.com, Credit.com, and Bankrate.com have comparison charts and other resources.

¾ Know your credit score: Get copies of your personal and business credit reports. Some agencies offer free credit reports, with restrictions.

¾ Read the fine print to fully understand the advantages and the limitation of the credit card you’re getting, its terms and conditions, and the fees.

¾ Don’t just focus on annual fees. Check out benefits like baggage insurance, concierge service, employee-expense tracking, and access to airline clubs.

¾ Take advantage of introductory zero-percent rates on purchases and balance transfers.

¾ Apply for a business credit card that will help your company build creditworthiness. That way, you can protect your personal credit and assets.

¾ Watch out for teaser rates and special offers; most of them come with strings attached. Make sure you understand the terms and how long your teaser rate stays in effect.

¾ Don’t apply for too many cards, as it might raise a red flag with creditors and reflect negatively on your credit score.

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The latest legislation

In June, 2013, U.S. Rep. Nita Lowey (D-N.Y.) introduced the Small Business Credit Card Act of 2013 (H.R. 2419) to protect small-business owners’ credit cards from unfair practices of credit card companies.

According to the National Small Business Association, the Small Business Credit Card Act would require credit card companies to notify businesses before raising their interest rates, apply payments to the balance with the higher interest rate, stop charging late fees unnecessarily, and more.

Source: “The Basics of Using Credit Cards to Fund Your New Business,” Entrepreneur, undated

Source: “What Is the Best Way to Use Credit Card Rewards?,” LowCards.com, 09/23/13

Source: “What is the Best Small Business Credit Card for Establishing Creditworthiness?,” SBA.gov, 03/14/13

Source: “Why Should You Apply for a Business Credit Card?,” SBA.gov, 03/02/12

Source: “Bill Introduced to Protect Small Biz Credit Cards,” NSBA.biz, 06/19/13

Source: “U.S. Households at Risk From Business Credit Cards,” Pew, May 2011