Using business credit cards: The do's and don'ts

A low credit utilization ratio helps maintain a good business credit rating

By Jason Bushey

It's just a fact that many (if not most) American businesses run on credit. Business credit cards are the small business owner's main source of readily-available cash, plus they build up a company's credit while allowing business owners to earn rewards.

But just like individual consumer credit cards, there are some things you should and shouldn't do with your business rewards cards.

Do consider the rewards opportunities

Many business rewards cards offer bonus cash or points for purchases made in specific categories such as office supplies, Internet and phone services, and other office-oriented products. Another kind of business card rewards all purchases with a standard rate of points and miles for all purchases.

Depending on what your company spends the most on, it might be more fruitful to go with the card that rewards more for specific categories than the one that rewards all purchases the same, especially if you find that the majority of your expenses keep going to the same categories. But if not, make sure you're at least getting some kind of rewards from your business credit card.

Don't apply for a charge card if you're short on cash

There are essentially two categories of business cards - credit cards and charge cards. Business credit cards work identical to consumer credit cards, in which individuals are approved for a credit line and are given the opportunity to pay back some or all of their balance once a month. 

Charge cards are different in that they require the entire balance to be paid at the end of each billing cycle. So there’s no interest attached to these cards, but businesses are not given the option to pay back a fraction of their debt.

Charge cards are great for established businesses hoping to earn rewards for the purchases they plan on making anyway. But if your company is a start-up short on cash, a credit card with a real credit line is more than likely the way to go.

Do sign up for employee cards

Employee cards give your employees the opportunity to earn your company rewards while strictly limiting their spending. Employee credit cards organize expenses without the risk of one of your employees running up a tab on the road. Plus, many business credit cards offer bonus points for opening one or more employee cards, so there’s essentially no downside to opening even just one.

Don’t run up a huge tab on one card

Rather, spread your spending out over two or three business credit cards to make sure all of your debts are in good standing. The higher the debt attached to a card, the higher the minimum payment required each month. Keep your minimum payment low and your credit utilization ratio down (the amounts you owe in relation to your total available credit) by keeping multiple business cards open and in good standing.

These are some of the basics when it comes to what you should and shouldn’t do with your business credit cards. But like any form of credit, ultimately the concept is simple: Keep your debts low, make on-time monthly payments each and every month, and only open credit cards that you’re positive will be beneficial to you and your company.

About the author: This guest post was written by JasonBushey. Jason writes about  credit cards and personal finance daily on Creditnet.com.

* Image license: Royalty and attribution free