3 Business Credit Card 'Gotchas' to Avoid
By and large, business credit cards are a fantastic way to help grow your business. They offer the quick cash you need to help fund your business, they're relatively easy to get approved for if you have a good-to-excellent credit score (which is another story for another time), and many cards will award you for the purchases you make in the form of cash back or points. When used correctly, business cards are a pretty awesome way to pay for your the supplies you need to keep your company moving.
That said, these are credit cards we're talking about here. There are multiple offers to consider, fees to be aware of, and any number of complications that can arise if you're not fully aware of the terms and conditions of a business card before you apply. So if you're considering a new business credit card (or you're having trouble with your current card), here are three business card "gotchas" to be aware of and—ultimately—avoid.
Credit card gotchas to avoid
1. Don't get roped into the sign-up bonus
Credit card sign-up bonuses are one part awesome and another part evil, depending on the budget of the cardholder and their ability to stay within said budget. There are a handful of business cards that offer some really lucrative sign-up bonuses, the catch being that you have to spend X number of dollars within a specific time period required by the issuer.
For example, a card may say it offers members 50,000 reward points after they spend $5,000 with the card in the first three months of card membership. That's a pretty great deal considering 50,000 points can net you and your business a fair amount of rewards.
That said, putting $5,000 on a credit card in three months is no joke. If that sounds like your monthly business budget, then ultimately that's an excellent way to make the purchases you planned on making anyway. But if $5,000 in three months is unrealistic with your current business growth model, then there's no use in going out of your way to spend extra just to earn bonus points.
Overspending could put your ability to make the minimum payment on your balance in jeopardy, and even then you'll end up paying interest on the remaining balance due. Piling up debt that carries interest is an easy way to get yourself—and your business—can be problematic for you and your company.
Basically, don't overspend for the sake of overspending; ignore your card's bonus offer if it's outside of your budget, or better yet choose a different card to apply for that better matches your company's monthly expenses.
2. Be wary of foreign transaction fees
Let's face it—the world of business (and the world in general) is getting smaller by the day. It's not unrealistic for your company to go global in a hurry, which means small business owners should prepare to use their new business card abroad. What many business owners fail to consider, however, are foreign transaction fees.
Foreign transaction fees drive up your business costs by adding anywhere from 1 to 3% on all purchases made abroad. You might think 3% doesn't sound like a lot, but over the course of a trip an additional 3% on EVERYTHING can really add up, costing you and your business in unnecessary expenses.
The good news is that there are numerous business credit cards that don't charge foreign transaction fees. Do your homework and be sure to determine whether or not the card you're applying for includes foreign transaction fees.
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- 3 Surprising ‘Gotchas’ When You Apply for Small Business Credit
- Landing Page Best Practices: How to Optimize Your Web Pages for Increased Conversion
- 10 Creative Ways to Grow Your Email List
- Should You Ignore Foreign Markets Just to ‘Play It Safe’?
- 3 Debt Financing Options to Get Needed Capital for Your Business
3. Don't go for business card cash advances
Finally, many business credit cards offer cash advances for cardholders. This is an enticing move for business owners low on cash flow, but more often than not it's a bad money option that could easily lead to bigger financial issues down the line.
Why? Because cash advances carry very high interest rates that kick in right away. So even though you get the cash you need (assuming this is cash you absolutely need), it's coming at a cost of close to 30% in interest annualized. Not only that, cash advances aren't free; generally there's a 3-to-5% cash advance fee on credit cards—a sizable amount to pay depending on the cash advance.
Before taking out a cash advance on your credit card, ask yourself just how badly you need the cash. If you determine it's a necessity, then we would urge you to consider other personal loan outlets, like the traditional bank route, or try something less traditional like peer-to-peer lending and apply for a business loan. No matter what the cause for your cash flow concerns, stay away from high-interest cash advance options offered by your business credit card.
