Often overlooked in favor of loans or lines of credit, business credit cards are becoming increasingly popular with Millennial entrepreneurs.*
Having enough money to pay your bills each month is a familiar problem for any business owner—even the most successful ones. To keep the business running, a majority of owners (86%) turn to loans or lines of credit to bridge gaps between income and expenses.** Yet, these borrowing options are often out of reach for new or struggling businesses who lack credit history—the very group most in need of funds.
As a business owner, it's inevitable that you'll need credit to help operate and expand your business. Credit cards can provide quick access to cash while you work towards qualifying for larger loans.
Build Business Credit History
One of the most useful aspects of putting business expenses on the corporate card rather than your personal one is the ability of the business to earn its own independent credit rating. Once a business has sufficiently built up its credit history, it receives a credit rating (a numerical score somewhere between 0-100). The higher the rating, the more likely the business is to be approved for a loan. Business loans provide the considerable ($25,000+) funds you need to purchase equipment, make leasehold improvements or invest in other long-term business needs.
Term loan payments and interest rates are predictable over the course of a set number of years, often staying the same from month-to-month, making payments easy to budget for. But, if you end up paying back the loan before the end of the term, some financial institutions will charge a pre-payment penalty fee. It's best to do your research and compare loan benefits, rates and fees before deciding whether to take on the responsibility of a business loan.
Funds Available on Demand
When used responsibly, corporate credit cards can be a useful tool for managing cash flow. More than two-thirds (67%) of small business owners have a business credit card, but only a quarter (24%) use it as their primary method of business spending.*** Paying for expenses with plastic at the start of the month lets you wait for income to come in at end of month, like a 30-day grace period between accounts payable and receivable. If you're able to pay off your credit card bill as soon as it's due, you'll avoid paying interest on the balance and earn a higher credit score for your business in the process.
Pay Less in Interest
Even if you carry a balance, a business credit card that offers a low annual percentage rate (APR) may still prove a better deal than a loan or line of credit depending on current interest rates. Business credit cards function similarly to lines of credit in that funds are withdrawn only as needed and interest is paid on what is borrowed, rather than the full credit amount.
However, funds borrowed on a line of credit start accruing interest as soon as you withdraw, while credit cards don't charge interest until after the monthly payment deadline has passed. Many business lines of credit also charge an annual fee. So even though lines of credit typically offer higher credit limits than cards, allowing you to take advantage of trade discounts or one-time supply cost reductions, the interest and fees accrued can end up costing you more than you thought.
Get Started With Business Credit
Get a business credit card that offers the flexibility and funding you need to take your company to the next level. The BECU Business Visa® offers one of the lowest APR in the nation**** and no annual, cash-advance or foreign transaction fees. To learn more and apply visit www.becu.org/businessvisa.
*2017 U.S. Trust Survey of High Net Worth Business Owners
**2016 Small Business Credit Survey, conducted by the Federal Reserve Banks of New York, Atlanta, Cleveland, Philadelphia, St. Louis, Boston and Richmond.
***Capital One Spark Business Barometer, May 2016
****Informa Research as of 6/7/2018