As loans dry up banks are funneling more small business lending through credit cards while small business owners heed the call.
Even though business credit cards allow you to make purchases and carry a balance from one billing cycle to the next the disadvantage of having to pay interest on that balance can become pretty costly.
Another kind of credit card for your business that may be a better alternative is the business charge card.
A business charge card is a specific kind of credit card that has all the convenience of a credit card without the costly interest. The balance on a charge card account must be paid in full when the statement is received and cannot be rolled over from one billing cycle to the next like a credit card. Because you can’t carry a balance, a charge card doesn’t have a periodic or annual percentage rate, so there is no rate for a charge card issuer to disclose.
The specific impact to your business credit is significant because charge cards will not allow you to incur a revolving debt like a credit card will. The larger the balances you carry on your business credit cards the more harm it can cause in your overall debt to credit utilization.
Here is a list of several business charge cards available in the marketplace:
- OPEN from American Express offers business card members the OPEN Savings program designed for companies with 100 or fewer employees. Some perks include 5 percent to 20 percent discounts on shipping, travel and business services.
- Diners Club International has been a leading charge card for business travelers since the 1950s. Features include club rewards, cash access, airport lounge program, a 24-hour emergency travel hotline and a rental-car insurance program.
- Universal Air Travel Plan is accepted by over 250 airlines and thousands of travel agencies for air travel, service fees and management fees. It’s best for companies that want to restrict charging to airline-related expenses.
- The American Express Corporate Meeting Card allows all event-related expenses to be charged centrally, so hotel rooms, meals, transportation, and so on, all go on a single bill.
While using a business charge card makes much more sense than a business credit card there several other important things to consider.
First, a business charge card should only report your payment experience to your business credit files and not your personal credit files. This prevents you from putting your personal credit scores at risk every time your company makes a purchase using your company charge card.
Secondly, some charge cards like Diners Club International will self contain your payment experience and will only report to the business credit bureaus if your account becomes delinquent. While this is good for protecting your personal credit scores it does not help your business credit file because they do not report your positive payment history.
Keep this in mind if you decide to start shopping around for a new business charge card that does not impact your personal credit. Pay special attention to the fine print and don’t hesitate to call and ask questions pertaining to how your payment experience is reported.
One of my favorite types of charge cards is ones that base their approval solely on your business’s credit worthiness. This type of card is the best of both worlds! Once approved your payment history reports solely on your business credit files and there is no personal guarantee keeping the liability strictly tied to your business.
I encourage you to be as proactive as possible by selecting business charge cards that report to the business credit bureaus. Don’t hesitate to inquire with vendors, suppliers, and leasing companies how they report your payment experience with them as well. Bottom line it’s smart business to use business charge cards in order to save thousands of dollars in interest and build a solid business credit history.
Marco Carbajo is founder of Start Business Credit.com
You may contact Marco directly at: email@example.com