Starting and running a business is a daunting task. You need to multi-task and manage several different things at once daily. Many of these decisions have a significant financial impact. One of them is deciding to get a business credit card.
Do you really need a separate card for business? Yes, you do. It is essential that you keep your personal and business finances separate. This way, even if something does go wrong on one side, it does not impact the other side. It also makes it easier to calculate your business expenses for tax purposes.
When you decide to get a personal credit card, you would start by understanding the various terms and conditions and other factors that you need to consider to choose the best one for you. The same applies to business credit cards as well.
Here are some things that you need to know to make sure that you are selecting the best business credit cards in India.
How Are Business Credit Cards Different From Personal Credit Cards?
The intent and purpose of getting a personal credit card and a business credit card are different. It follows that there will be many differences between them. It is pertinent that you understand them so that you can make an informed choice.
The foremost difference is that unlike your personal credit cards, business credit cards are not covered by the CARD Act. The CARD Act ensures that creditors have enough time to pay bills, the interest rates cannot be increased retroactively, sets a limit on the annual fees and makes it easier to pay the credit card debt.
While many companies do offer some of these protections to business credit cards as well, it changes from creditor to creditor.
Despite being a business credit card, you are personally liable for making the payments on time. It also means that if your business revenue is insufficient to pay the credit card bills, then you have to pay them from your personal finances.
The expense and needs of a business are much greater than those of an individual. Accordingly, the credit limit of a business credit card is much greater than that of a
Track Business Spends
When you make all your business purchases using the business credit card, it becomes easier to track and analyze your spending. You can issue business credit cards to your employees. If most of the transactions are carried out by your employees, then employee credit cards that are linked are a must.
You can track the expenditure of all the cards from a single location. It can ease your budgeting process. It can also help you identify areas where there is excessive spending without much of a result. You can then trim the expenditure in such areas.
Charge Cards Or Credit Cards?
When it comes to business credit cards, there are two types of cards – charge cards and credit cards. Both work in the same fashion when you are using them for making purchases. However, their credit limit and bill payment procedure differ.
Charge cards have an almost unlimited credit limit. You can use them to make high-priced purchases. But you cannot carry forward the balance on the charge cards. You have to pay the bill in full within the specified deadline.
Credit cards may have a credit limit, but they also give you flexibility in paying the bills. Many business credit cards also offer 0% APR for a limited period of time in the beginning.
If your business requires you to spend large amounts while using your credit card and you are sure that you have enough cash flow to pay the bills promptly, then you should opt for charge cards. In all other situations, credit cards work in your favor.
Just as with personal credit cards, you can choose business credit cards that offer the most reward points for the area where you spend the most. You should start by analyzing how you will be using the credit cards.
Will you be traveling a lot? Do you have to take clients to dinners before fixing a deal? Does the business require traveling by road?
Once you have the answer to these questions, you can select a card that offers maximum rewards for the area where you spend the most. It will help you save money in the long run when you convert the reward points to usable miles or for cashback.
If you are finding it difficult to categorize your expenses, then consider getting a card that offers relatively good reward points across the board.
Fees vs Perks
Most of the business credit cards have an annual fee. The annual fee may even be higher than that of personal credit cards. You should weigh the benefits of using the credit card against the annual fee to make the right choice.
A high annual fee may not be a problem if it also offers higher rewards and other perks that are suited to your business. You may save much more than the fees. However, if that is not the case, you end up at a loss.
Some of the perks to consider are interest rates, insurance, financing options, purchase protection, etc. Many companies offer 0% APR for the first year or so. During this time, your spending on the card becomes similar to a no-interest loan. You can use this to finance your business when you are having trouble getting financing from banks.
Another factor to consider is the signup bonus offered by the credit card. Since businesses will have higher expenditure when compared to an individual, the signup bonus should also be higher.
You should also see if the signup bonus is suited to your business needs. There is no point in having a large signup bonus if you won’t use it. Signup bonuses can cover many expenses and help you cut costs in crucial times.
Business credit cards help you keep your personal and business finances separate. However, your CIBIL score can still impact the interest rate you get for the business card. If your CIBIL score is not great, you can check out how to improve CIBIL score and do the needful before getting a business credit card.
Keep the above-mentioned points in mind, and you will be able to select a card that offers significant benefits to your business.