Credit cards are handy transaction instruments because of their worldwide acceptance and the ease of use to fund daily needs. It is especially helpful in fulfilling urgent and unexpected need for money where you cannot opt for a loan.
If you run a small business, it is advisable to not use your personal credit card to make payments. Instead, opt for specialized business credit cards available in the market. There are several credit card options that are being aggressively promoted by certain banks and provide some really good benefits and offers especially designed for business expenses. It is also not a good idea to mix personal and business expenses even if it is run by a sole proprietor.
There are some factors that you to consider to make your decision on which business credit card suits your best.
Why do you need a credit card?
It is always good to first understand the nature of your expenses. What will you need the credit card for? It could be for everyday business needs like making purchases for your business or making payments to vendors.
You can also form a detailed accounting report with the credit card history and also understand your spending patterns to make planned expenses. These credit cards can also be given to your employees with a preset spending limit.
Note that the spending on this card will be treated as unsecured loans and can affect your business' credit score.
The bank will decide your credit limit based on spending, payment history and debt your business owes. Do not opt for a very small credit limit that will make having a credit card limit useless. At the same time, do not go for a very large credit limit that is beyond your budget.
Credit card limits are considered as open unsecured loans, which means, you are taking a debt without any collateral and too much of it could affect the business' credit profile.
Interest rate and processing fees
It is important to check the interest-free credit period option provided by the bank. As interest rates on credit card spends are high, you also need to ask for the annual interest rate, in case the bank provides you with the monthly rate. It helps you get a better idea of the interest to be paid.
Also, ask about the subscription and processing charges on the card. Banks usually charge an annual subscription fee and a small processing fee on every transaction. A fee is also charged on overdue of fees, withdrawal of cash, etc. Before you get a credit card for your business, it is advisable to get a detailed breakup of these charges.
If your business involves international travel and spending in a foreign land, you also need to be aware of the credit card charges and payment rules in that case.
Offers and discounts
In order to encourage spending through credit cards, banks give offers and discount to cardholders. The spending allows you to collect air miles, dinner or movie offers. The ones with entertainment benefits can also be shared with your employees as a token of appreciation.
Discount offers specific to business purchases can be used to cut inventory costs. You can talk to the bank and choose one that suits your requirements best.