Choosing the Best Credit Cards for your Small Business

You may ask "Why do I even need a business credit card? After all, I can just use my personal cards and keep track of the receipts (which I have to do anyway)." This is true, but the fact is there are a lot of advantages to having dedicated cards for your business, most at little to no cost to you. I should point out here that, with few if any exceptions, it will be your personal credit backing up your "business" cards. Which may lead you to repeat your first question, with a slightly different twist. Fair enough, but read on and make the decision for yourself.

One big advantage to having separate cards is that it just makes it easier to keep your personal expenses separate from your business expenses. From the moment you pull a card out of your wallet (or type a card number into a website) to pay for something, having physically separate cards for personal and business expenses just makes things easier all the way down the line. A few examples: It's easier to categorize your expenses when you aren't also trying to pick out your grocery and dry-cleaning items from your business lunches. If you use an accountant or CPA for your business, it's easier to give them only your business card statements (or in many cases, give them limited access to your statements on-line). If you have an assistant that buys office supplies, books travel, etc., it's cleaner (and somewhat safer) to issue extra cards for them from a business account than from your personal card. And the year-end summary and/or on-line reporting that comes with most business cards today becomes a lot more useful as a management and analysis tool (since it's just about useless if your personal expenses are mixed in).

Side note: A bit of advice on giving "company cards" (remember, in just about all cases, they are just an extension of you and you are still responsible for the charges) to partners or employees. Don't do it, except in the specific case of a designated employee (or two) that has specific purchasing responsibilities (like office supplies/services, travel for you, purchasing items for resale, etc.), and then make it clear that the card with their name(s) on it is to be used exclusively for those purposes (then enforce this rule). Everyone else, like salespeople that are expected to have some T&E expenses, should use their own personal credit cards (that they are responsible for) and turn in a monthly (or more frequent, if necessary) expense report. It not only encourages them to keep better records and be more mindful of what they spend money on, it keeps you from being liable for the $20,000 in questionable T&E that your west coast sales manager racked up the month before you fired him (for questionable T&E). I've been personally burned by this--once--don't let it happen to you.

Another advantage to "business cards" is that many of the features they come with (and you'll need to choose those features that make sense for you and your business buying habits) are focused on the needs of small businesses. For example, many business cards provide automatic discounts or rebates on things like overnight shipping or office supplies--things that businesses typically use that individuals don't (and so individual cards don't carry those features). When looking for a card, see what features are available that would make sense for you. For example, if you rarely travel, a card that offers discounts on travel is probably not your best choice.

Like many personal cards, a lot of business cards provide various perks: airline miles, reward points, cash back, etc. The choice here is also very personal. If you already have a lot invested in a particular airline's frequent flyer program, and you can make use of those miles, it probably makes sense to look at business cards that earn miles in that program. Regarding cash back programs, if you are using credit cards as a way to extend payments over time, these are probably not the best choice, as some only pay you the rebate if you pay within the grace period, whereas others pay you the rebate but often at the consequence of a higher interest rate. Here again, look around and see what cards offer perks that are meaningful to you and aligned with your business buying habits.

You may also consider having more than one business card. Something I've done many times over involves a total of three or four separate card accounts (not to be confused with additional cards on an account, as discussed above):

1. An American Express Business Gold or Platinum card (not a credit card, so you pay it off entirely each month): This is your "primary" card, to be used for all purchases except those specifically slated for the other accounts. Amex cards have great discounts on common business expenses, rich on-line account access, and one of the best all-around rewards programs. If you travel a lot, go for the Platinum card--it gets you into most of the major airlines' airport clubs at no cost--well worth the annual cost of this card. If you don't travel, stick with the Gold card.
2. A second American Express card or a Visa/MasterCard dedicated exclusively to recurring purchases (i.e., monthly charges--like Internet or wireless service and on-line subscriptions--that various service providers can bill directly to your credit card rather than send you a bill): Here again, try to find a card with "good perks", a good rewards program, and/or a rebate program. The interest rate on this account matters little, because you will always (or almost always) pay this one off each month (for obvious reasons: the key phrase being "recurring charges").
3. A Visa/MasterCard with the lowest possible interest rate you can find: This is the one you'll use to make bigger purchases and extend payments over time; and you'll usually have to give up rewards/perks in favor of low interest.
4. An optional Visa/MasterCard used for on-demand purchases with vendors that don't take American Express: Yes, they are still out there. Of course, you could use one of your other Visa/MasterCard accounts, but having a separate card for this purpose works well for a lot of reasons, including making sure you don't inadvertently go over your credit limit on your recurring card and/or you don't keep adding new charges to your "extended payments" card (which will increase your total interest paid). Look for a no annual fee card in lieu of perks or rewards (if necessary), as this card won't get a lot of use under normal circumstances.

Naturally, your mileage may vary. This is a "card strategy" that I have found to work well for several of the small businesses I have started. If an American Express card doesn't work well for you (I happen to like them), then you can omit account #1 and instead go heavy on the perks/rewards on account #4 and use it as your primary on-demand purchase card (that you pay off every month). Note also that I didn't mention DiscoverCard. I have no particular issues with Discover, and that may be a viable option for one or more of these accounts, but like Amex, there are some companies that don't accept Discover, so I don't recommend this as your only option.

Two good places to start when looking for cards are BankRate.com and CreditCards.com (click on Business Credit Cards on their homepage). They have various search tools to help you find the particular set of features that you're looking for, as well as a comprehensive list of cards from all the usual suspects (Citi, Chase, CapitalOne) as well as some really great cards from lesser known banks that are certainly worth a look (disclaimer: when looking at a bank that isn't a "household word" to you, do your research first, but you'll often find that just because they are not well known to you or in your part of the country does not make them any more risky or less viable).