Interest is King: Choosing the Best Business Credit Card for American Entrepreneurs
We are all familiar with credit cards and how they work. In fact an estimated 47% of Americans have at least some balance of credit card debt (totaling over $1 trillion!) making them the most ubiquitous form of credit in the financial market. The popularity of credit cards is, however, matched by their notoriety. Many credit card debtors will testify that while they may be easy to come by, high interest rates coupled with harsh terms prove the adage that if something comes too easy, it can’t be very good for us.
When it comes to running a business however, credit cards are often simply a reality of operating, Firstly, many businesses simply need an additional form of fast credit from time to time. Furthermore, credit cards can be a very effective way to make company purchases and to empower trusted employees to make purchases on behalf of the business (such as team dinners!) facilitate.
During the last decade, we witnessed a sustained period of rock bottom interest rates and so, finding the lowest possible business credit card interest rate was a key driver for many entrepreneurs. As such, credit card providers spent the last few years locked in competition to offer the lowest possible rates.
However, there is more to credit cards than interest rates and as we shall examine here, a number of other factors should be borne in mind when choosing the best credit card for one’s business.
Why Low Interest Rates are Crucial
Rule 101 of borrowing money is that every penny borrowed needs to be repaid and then some in the form of interest. Rule 102 is that interest compounds and can become exponential if repayments are missed and for both of these reasons, the lower the rate of interest the better.
Unfortunately, credit cards attract some of the highest interest rates on the market. Whereas mortgage interest rates range from between 3% – 7%, credit card rates begin at 20% and only climb upwards.
Bearing in mind that operating any business is a risky venture and that cash flow can often be tight, it is crucial for a business to find as low a credit card interest rate as possible in order to avoid having to use available cash to make interest payments.
The Value of Rewards Programs
Credit card reward programs can offer great value for account holders who use them wisely. The rewards offered do tend to vary widely between different credit cards, but most tend to fall into a few general categories such as cash back, points, or travel rewards.
However, note that many reward cards do charge an annual account fee so it is vital to do the maths and make sure that the rewards are worth more to the business than the fee.
Annual Fees and What They Mean for Your Business
Credit card companies basically make their profits in two ways – charging interest on balances and levelling annual fees. Not all credit cards attract fees but business credit cards, “prestige” credit cards, and cards with reward packages generally do. The fee can range from a few dollars up to $1k in some cases.
When choosing a card it is important to pay attention to any annual fees and make sure that the card offers value.
Finding a card with low or no fees is often simply a case of using a market comparison site and going from there.
The Perks of Complimentary Insurances
One common reward offered by credit card companies is insurance (whether home, travel or vehicle breakdown cover). Credit companies are often subsidiaries of larger financial services providers and these kinds of insurance policies are seen as low risk, low cost and so they can offer them for “free” to attract customers.
Note that it is very unlikely that a credit card issuer will offer bona-fide business insurance. Therefore this perk may prove to be of a very limited value to business owners unless they travel regularly on business.
The Convenience of Additional Cardholders
Additional business credit card holders are named employees who are issued with their own card which is linked to the business’ account. These named cardholders can use the card to make purchases and pay expenses on the behalf of the business.
The benefits of this include delegation of responsibility making the owners’ lives easier. It can also be a helpful way for a business to build credit. Often we also see promotions for adding cards to your account, which can earn you a bonus.
Of course, the risk is that an employee could “go rogue” and use the card improperly but this can usually be countenred by ensuring that employees are happy, and by setting limits on how much they are allowed to spend on the card.
Top Business Credit Cards in the US
The American credit card market is a truly buoyant one (unlike in Australia for example where options are limited and rates typically much higher). However these are some of the top business credit cards in the US today.
This card offers flexible reward points that can be used for a variety of purposes making it attractive to many business owners. In terms of interest rates, the card offers an introductory interest rate of 0% which increases to between 18.24% – 26.24% after the first 12 months.
This card offers a great cash-back reward structure including 5% in cash back on the first $25,000 spent on business expenses including office supply stores, on internet, cable, and phone service. Like the American Express Business Gold Card , the interest rate is set to 0% for the initial 12 months and then rises to 18.24% – 26.24%.
This card is known for its simple and generous cash back rewards program, offering unlimited 2% cash back on all purchases. Interest rates currently range between 18.24% – 24.24% depending on credit worthiness.
In the world of business credit cards, interest rates are a vital consideration. High interest rates can be a major burden on businesses, especially at ti,mes when cash flow is tight. As such, finding a card with a low interest rate is essential to avoid unnecessary interest payments and to ensure responsible borrowing.
Beyond interest rates, credit card reward programs can offer significant value if used wisely as can additional benefits such as insurance. However, it is important to weigh the value of the rewards against any associated annual fees to determine if the card truly benefits the business.
Finally, all businesses should also conduct an annual review of their credit card account, and the market generally, to ensure that they have the best possible one for their nerds.