Business Credit Cards
Business credit card comparison
Business Credit Cards can be a very useful source of additional working capital for small and large businesses alike. If you own a personal credit card and have some understanding of how it works, then you already have a good idea of how business credit cards work too. Basically, a business credit card allows business owners, and their key personnel to purchase goods and pay for services on credit, up to the credit limit approved by the card provider.
Just like personal credit cards, business credit cards provide ready and accessible credit but with a few additional features for easy management such as employee purchasing control and in-depth financial reporting. Most business credit cards come with interest-free periods, while some also offer rewards programs and balance transfer options. However, there are still significant differences between a personal and business credit card which you should be aware of before deciding to sign up for one.
A Guide to Business Credit Cards
Business Credit cards are usually issued in the name of a business and are used to cover work related purchases made for use within the business. To be eligible to apply for a Business Credit card the business will need either an Australian Business Number (ABN), or Australian Company Number (ACN) along with contact details of their Accountant.
Business credit cards operate very much in the same way as a personnel credit card, though they also tend to include an array of features designed specifically for business use, the 5 most common of these are:
- Restricted Use - This measure is designed to ensure business credit cards are used only for their intended purchase, so for example business owners can prevent their business credit card from being used to make cash withdrawals or specified types of purchases.
- Cards issued to employees - In a similar manner to supplementary cards on personnel credit cards Business Credit Cards offer the ability to add supplementary cards to the account for issuing to employees of the business. With Business Supplementary cards each of the cards issued can be allocated a different credit limit and usage restrictions, relative to the employees requirements to fulfill their role.
- Expense Management Reporting - To help business owners and their finance teams manage the expenses incurred on their business credit cards the card providers offer reporting which is synch with the standard reporting formats of the major accounting software tools for easy importation and reconciliation of expenses.
- Benefits to help build your business - The card providers appreciate that business customers are very valuable and therefore they invest in developing a range of complimentary benefits designed to help business owners manage and build their business. These complimentary benefits may include insurances, rate discounts and the opportunity to meet with a business banker.
- Any debt is the responsibility of the Business - All business credit cards are issued to the company and not to an individual, and so any debts incurred on a business credit card are the responsibility of the Business and not the Individual who may have made, and approved the transactions. It is for this reason that business credit cards all offer the ability to restrict the value and types of purchases made on these cards, as in the end the responsibility for the debt rests with them.
Business Credit Card Comparison - Tips on how to approach this
1. Access the costs to your business of using a Business Credit Card
Two factors heavily influence the cost of a business credit card, the annual fixed fee and the purchase rate. The level of the annual fee is determined by how rich the card is with benefits, so for example if the card offers a reward program its highly likely the fee for this card would be higher (probably at least double) than a card with no reward program. The same cost differential would apply where a card has complimentary business insurance, or not. The purchase rate of business credit cards is the rate of interest you will be charged on any purchases made with the card which are not repaid in full by the due date on your monthly card statement.
How you intend to use the Business credit card should be carefully considered as this will help identify a shortlist of cards that will best suit the businesses spending and budgeting requirements.
Where the business credit card is going to be used to make purchasing easier to manage, more convenient and you are confident that the balance on the card account will be cleared in full each month, business credit cards with low or no annual fees should be high on the potential list even though these cards Purchase rate may be at the higher end of the range, as no interest will be incurred so long as all the balance is cleared each month on time.
If your intention is to use a business credit card as a line of credit, the purchase rate becomes the significant criteria, as it is this that will determine the monthly interest charge on the debt that is carried across on the card each month. Many attractive introductory offers with a focus on low or 0% purchase rates frequently are offered by the major card providers, though be sure to check the terms and conditions of these cards as they have some very tight conditions relating to retaining the low purchase rate.
2. Pay no interest on purchases by using the credit cards Interest-free days
The majority of Business Credit Cards offer interest free days, with the average being up to 45 days. These interest free days are the number of days which purchases incur no interest charges.
The actual number of interest free days each purchase you make with your business credit card will receive is dependent on when, in your statement cycle, you make a purchase. So for example if you make a purchase on day 1 of your statement cycle you will receive the maximum 45 days interest free days on that particular purchase amount.
Common to all business credit cards is that to benefit from these interest fee days each month, your card balance must be settled in full by the stated repayment date.
3. Complimentary Benefits which save $$ and provide peace of mind
With the business holding full liability for all purchases made with a business credit card efforts by the card providers to mitigate fraudulent and unauthorized transaction are highly valued by business owners. The efforts made by the card providers to save on expenses whilst providing peace of mind include
- Replacement, repair, or reimbursement of items purchased with the business credit card in the event of theft or damage;
- Extended warranty protection for purchased goods, given on top of the manufacturer’s warranty;
- Comprehensive travel insurance for trips charged to the card;
- Fraud monitoring for online purchases and transactions;
- Protection against employee misuse of their credit card privileges.
4. Does getting rewarded for your Business Spending make sense?
The inclusion of a reward program should probably not be amongst your primary reasons for selecting a business credit card, though they are worth including in your thinking, particularly if you plan on using your business credit card as a primary vehicle for expensing your businesses operational costs through.
Many of the rewards programs offer rewards that may well be directly relevant to your business and so offer “real” value, which can benefit the business. The ultimate real value is the cash back reward where your card is credited with a sum of cash, or there are the multitude of merchandise which can be acquired in return for points, so maybe a new computer or printer for the office?
When accessing the virtues of business credit cards that include reward programs be mindful that these cards do tend to attract higher annual fees, and if you are not 100% confident that the balance of the credit card will not be fully repaid each month refocus your thinking back toward low purchase rate cards.
Applying for a Business Credit Card
Applying for a Business Credit Card follows essentially the same process as that of applying for a Personal Credit Card, whereby the credit card provider requests a range of information on your business which it then uses to asses the your businesses ability to manage debt and repay any debt incurred on a business credit card.
When you submit your business credit card application, it will be evaluated by credit card providers based on your credit score. To the credit card provider the credit score is one of their most reliable indicators of whether the individual or business can keep up with their payments and be able to pay on time. The credit score, which is central in the assessment of all business credit card applications, is calculated not by credit card provider, but by a specialist credit reporting agency.
There are currently three major credit reporting agencies operating in the Australia - Veda Advantage, Dun and Bradstreet, and the Tasmanian Collection Service. These credit bureaus are the agencies that issue credit scores, and while each agency has its own set of standards to aid them in their computation of business credit scores, some criteria may be common among them. These include:
- The type and age of the business, and the number of employees
- Payment history (especially delinquencies) and the number of inquiries into the business
- Amount of credit utilized versus the available credit
- Current payment status, and any liens and collections which may be in force
As a general rule when assessing applications for Business Credit Cards credit bureaus also consider the personal credit history of the business owner or the principal. Consequently it is important that when you make any application for a Business Credit Card you ensure that your personnel credit report is in good order with no blemishes.
What Information is required to apply for a Business Credit Card?
For most business credit card providers, the standard requirements are: You must be at least 18 years of age, of good credit rating, and at least a permanent resident of Australia. In addition to providing details and information about your business, you will also need to have registered for an Australian Business Number (ABN). Some providers specify additional eligibility requirements such as a minimum business income and/or a minimum number of years for the applicant to have been in business.
Here's a checklist of information to have to hand before commencing your Business Credit Card Application:
- Your Personnel Income details to include salary, wages, pension and any other sources by annual or monthly value.
- The applicants details - name and address details (note these personnel details will be used by the credit card provider to access your application in conjunction with the information provided about the business)
- Current employment - Company and position in the company
- Company Details - Name, Business Type (Sole Trader, Charity, Pty Ltd etc.) ABN and business category (selected from a drop down list)
- Company Contact details - mobile number, email address and the address from which the company trades
- Financial commitment details - to include details of any mortgages, loans, credit cards and monthly living expenses
- Driver's license (Optional)
- Your accountant's details (Optional)
- Balance Transfer Details - Details of the credit card and value of any balance transfer. (Optional)
Business Credit Cards - Frequently Asked Questions
For business owners who enjoy a high credit limit with their personal credit card, getting a business credit card isn’t such a necessity anymore. But a personal credit card is not exactly a substitute for a business credit card as there are many differences between the two. Let’s look closely at some of the most important differences.
- Business credit cards are issued to the company, whereas personal credit cards are given to the individual. As a business owner, you could have added protection because the company (if you are operating as a company) and not the individual, is responsible for the usage of the card and any debts incurred through it. This is a completely different scenario from when you use your personal credit card for business purchases. In this case, you will continue to be liable for those business expenses even if the company is in trouble.
- Business credit cards generally have higher interest rates than personal credit cards. This is because business credit cards also come with higher credit limits than most consumer credit cards. The annual fee and other transaction fees may also be higher for business credit cards, although on the upside, it could also come with added features such as insurances specific for business and banking discounts.
- More cards can be issued with business credit cards than with the personal card. A personal credit card can have as many as 3 to 5 supplementary cards but a business credit card facility is allowed an even larger number of additional cards. You will also have more control over the cards because you can specify the credit limit and spending restrictions on each of the cards issued under the business card line. This way, every employee entitled to a card will get the credit limit and spending power suitable for him or her.
- Business credit cards often come with added reporting and monitoring features that are not available with a personal credit card. For a business owner or company executive, these tools can greatly simplify the process of tracking expenses for budgetary and tax purposes.
While the term ‘business credit card’ is often used for business cards that offer a credit line, there are actually two types of credit cards designed for businesses: a Business Credit Card and a Corporate Charge Card.
A business credit card is the more common of the two and functions just like a personal credit card. You use the credit card for paying business expenses and at the end of every billing period, you are given a few days to either settle the outstanding balance in full, or just pay at least the minimum amount. Any outstanding debt left unpaid after the due date will be carried over to the following billing period with an added interest cost.
A corporate charge card on the other hand, works essentially as a short-term monthly loan for businesses. Any purchases charged on the corporate card will be considered payable immediately at the end of the month or the billing period. This allows companies to avoid high interest fees while also giving the convenience of a typical credit card. However, due to its more stringent payment terms, it is more suitable for larger companies that have established financial resources that allow them to pay off any and all debts incurred over the past month.
The Business Credit Score is the equivalent for businesses of the Personal Credit Score for consumers or individuals. A business credit score aims to answer one key question: What are the chances of the business going delinquent?
As a potential borrower, you will be evaluated by credit card providers based on your credit score. To them and to all financial institutions for that matter, the credit score is one of their most reliable indicators of whether the individual or business can keep up with their payments and be able to pay on time.
There are currently three major credit reporting agencies operating in the Australian market - Veda Advantage, Dun and Bradstreet, and the Tasmanian Collection Service. These credit bureaus are the agencies that issue credit scores, and while each agency has its own set of standards to aid them in their computation of business credit scores, some criteria may be common among them. These include:
- The type and age of the business, and the number of employees;
- Payment history (especially delinquencies) and the number of inquiries into the business;
- Amount of credit utilized versus the available credit;
- Current payment status, and any liens and collections which may be in force.
As a general rule, credit bureaus also look into the personal credit history of the business owner or the principal. This means that consumer credit data may hugely impact business credit. Therefore, it’s always wisest to exercise prudence in your credit activities, whether personal or business, as one may affect the other.
There are several benefits to having your business credit separate from your personal credit. Listed below are the most significant advantages:
- You keep your business expenses separate from your personal purchases. Not only does this simplify tax filing and auditing processes, it also gives you a better idea on how well your business is doing. Just refrain from making personal purchases on your business card (and vice versa) for easier management of both your business and personal finances.
- You have an additional source of working capital. With a business credit card, you open up an accessible source of added funds for your business. This option would not be available to you if you simply choose to use your personal credit card for business purposes.
- You have better control over individual employee expenditure. Business credit cards can be allowed a large number of supplementary cardholders, some up to 99 cards. Each of these cards can have its own credit limit and per transaction limit so it’s easier for you to designate which staff member gets this much credit limit.
- You protect your personal credit. Because there is never any guarantee that your business will always do well, keeping business and personal credit separate ensures that your personal credit score won’t take as much of a hit if ever your business goes under.
- You have reporting and monitoring tools offered only with business credit cards. With these features, you can easily manage and keep track of expenses and purchases, saving you countless man hours and administrative costs.
- You can use rewards points to augment your business finances. Many business credit cards also offer rewards such as frequent flyer programs and travel benefits that you can use as additional resources for your business.
Yes. Not all business credit cards have to be for big, established businesses. In fact, there are many business card offerings out there that are designed for small businesses. Some of these cards are annual fee-free and offer relatively low interest rates. Other than having an added source of working capital, getting a small business credit card is a good way of building up credit for your business.
There are many stories that tell of startups that were able to establish successful businesses even while relying mainly on credit cards. It’s even said that founders Sergey Brin and Larry Page started Google in the mid-nineties by maxing out their credit cards. That said, there are also a lot of business owners that used credit cards finance their businesses only to be left with huge credit card debts when the startups failed to take off.
Does that mean that it’s not wise to bootstrap a startup using credit cards? No, it doesn’t. Financing a new venture by using your credit card facility can turn out to be a risk that will pay off in the long run. However, as the chances of failure are about as high, if not higher, as the chances of success, it certainly pays to be more prudent when using this financing option.
One of the main advantages of using a credit card to kickstart a business is that you can start immediately with practically zero capital. But even before you rack up those debts, you need to have a sound plan to pay off credit card debt. That’s why bootstrapping a new business using credit cards is suitable for those who also hold a day job or have the regular income for those monthly payments while the business cannot yet pay for itself. Even better is when you can clear off as much of the debt as quickly as possible. Otherwise, at the current rates of 18% p.a. and above, the interest costs can really hurt your finances.
But more than just hurting you financially, credit card debts can end up your personal credit history and score. Even if you had a stellar credit credit rating to begin with (thus the high credit limit that can help you with your startup), this could go down the drain the moment you start to default on your credit card debt. Not being able to get a credit card for business or personal use is one thing, but it’s even worse when even your capability to buy a new car or home, or getting a good auto insurance rate or other loans is also negatively affected. This is why you should think twice, thrice, or even many more times before going into a new business with just a credit card in your hand.
Yes, many Australian business credit cards do offer rewards programs.
Business credit cards with Frequent Flyer Rewards are available with either Qantas or Velocity Frwquent Flyer Points. The frequent flyer points earned from reward business credit cards can be used for any business purposes such as when you need to travel, entertain business partners and clients, or to reward employees.
Not likely. First off, membership to the Frequent Flyer Rewards Program is a must if you want to have credit card rewards points go towards the program. Now even if you already have a personal frequent flyer account, there’s a big chance that you still would not be able to have your business credit card rewards points transferred to your frequent flyer account because the credit card name should match with the name of the frequent flyer account. A personal frequent flyer account would be in the individual’s name (or your name for that matter) while the business credit card would be under the name of the business or the employer.
Thus, moving frequent flyer points earned under a business credit card to a personal frequent flyer account could result in an unsuccessful transfer. Just to be sure however, check the Terms and Conditions of your frequent flyer program and the rewards program of your business credit card provider.
It depends on the guidelines that the company or business has set regarding the usage of credit card rewards points.
If you are the business owner however, then redeeming rewards will really be at your discretion. Since the rewards for business credit cards will be of the same nature as personal credit cards - cash back, merchandise, gift cards, travel, entertainment, etc. - you can opt to use these for your personal needs or plow it back to the business. For instance, free flights can be used for business-related travel, entertainment rewards utilized for promotional offers, and gift cards or merchandise given to meritorious employees.
Yes, there can be some advantages to getting your Business Credit Card from the same provider as your personal credit card. For one, if you’ve exercised good credit management with your personal credit card, you’ll be in a better position to get approval for a business credit card and with a substantially higher credit limit at that. In addition, you would be more familiar with the Terms and Conditions that govern the credit cards of that provider.
On the other hand, if you have excellent personal credit and more so if your business has already started to establish a good credit history on its own, then there’s no reason why you can’t get approved for a business credit card from another provider.
For most business credit card providers, the basic requirements to apply are standard: You must be at least 18 years of age, of good credit rating, and at least a permanent resident of Australia. In addition to providing details and information about your business, you would also need to have an Australian Business Number or ABN. Some providers specify additional requirements beforehand such as a minimum business income and/or a minimum number of years for the applicant to have been in business.