Business Credit Cards: How to Best Benefit from Cash-Back & Rewards

Rob O’Regan -- Expert Business Source, 5/15/2007 5:30:00 AM

Financial institutions are getting more creative in the credit card programs they’re developing specifically for small business owners.

There’s a big upside for the banks. The Los Angeles Times reports that less than 5 percent of the $4.9 trillion that small-business owners spent in 2006 was put on a credit or debit card. As a result, card issuers are developing a broader range of card programs designed to attract business owners that have shunned cards in the past.

The options include:

Travel/rewards cards, in which the cardholder accrues points (usually 1 point for each $1 spent) that can be redeemed for airline travel, entertainment or merchandise. Some offer bonus points of, say, 15,000 miles for the first purchase.
Cash-back cards, in which businesses earn 1 percent cash back on each purchase, with higher rebates (up to 5 percent) sometimes offered for products such as office supplies or gas.
Extended-payment cards, which offer 60-day interest-free cycles instead of the typical 30 days. These are targeted at owners in construction and other industries where cash flow is an issue.
Specialty cards that offer distinctive features or affiliations. For example, Bank of America offers a card that lets owners process credit-card transactions directly from QuickBooks.

Business credit cards can be a valuable asset for small business owners looking to separate their personal and business spending, or those seeking a more efficient way to track employee spending. As with any purchase, however, business owners need to read the fine print before applying for a card. In particular, owners should watch out for 0% introductory APRs that explode into high variable rates after the first 3-6 months.

Smart Money suggests asking these questions to help decide which small business credit card is right for you:

How quickly do you plan to pay off your balance? Charge cards may not have spending limits — but you’ll have to pay off the balance in full within 30 days to avoid finance charges.
What kind of rewards do you want?
If you’re going to give cards to your employees, does the bank charge a fee for additional cards?

About.com offers six steps for effectively managing your business credit cards:

Apply at home: Always consider applying for your small business credit card at your existing financial institution, because your banking relationship can aid with the approval process.
Limit card hopping: Signing up for multiple cards to take advantage of deals can have a negative impact on your credit rating and make managing your cards more difficult.
Use grace: The majority of small business credit cards offer a 21-day grace period before you have to make payment on your purchases.
Pay online: Save time and extra costs by paying your small business credit card online versus paying by teller at your local branch or mailing in your payment.
No cash advance: Avoid the cash advance feature on your card; cash advances incur more fees and costs.
Avoid late payments: Late fees and high interest rates quickly erode the merits of using your small business credit card.