Should You Pay For Business Expenses With A Line Of Credit Or A Credit Card?

Two worried friends having problems buying on line with credit card and a laptop sitting on a couch in the living room at home
Credit cards and lines of credit share many characteristics. You may even be wondering how they differ at all, and whether it’s better to make your business purchases with one or the other.

In fact, there are a few key differences that can help you determine when to use one or the other.

Similarities Between Lines Of Credit & Credit Cards

Credit cards are technically revolving lines of credit, though they aren’t often called that. As you pay off your balance, that credit becomes available to use again.

Beyond that, both credit cards and lines of credit accrue interest on any outstanding debt.

Differences Between Lines Of Credit & Credit Cards

The most obvious difference is that not all lines of credit are “revolving.” When a bank extends you a line of credit, it may be a one time offer. Usually, when a financial institution extends a non-revolving line of credit it’s to cover a specific expense the borrower is seeking to fund. Unlike a loan, a line of credit gives the borrower some extra flexibility to negotiate with vendors.

The differences between revolving lines of credit and credit cards are a bit more subtle. For starters, a line of credit often comes with more fees than does a credit card. You may, for example, have to pay a monthly or annual fee to keep your line of credit open. While some credit cards (particularly business credit cards) do come with annual fees, it’s not hard to find ones that don’t. Some lines of credit will also charge a fee every time you make a withdrawal.

Though it will vary from case to case, you can also generally get a higher credit limit through a line of credit than with a credit card. Both credit cards and lines of credit come in secured and unsecured forms, though with credit cards you’ll only want to go the secured route if poor credit keeps you from qualifying for a traditional card.

Since lines of credit can be secured by assets, it’s not unusual to see better interest rates there than with credit cards.

Note that it’s a lot easier to get a credit card than a line of credit, although getting an elite credit card can be challenging in its own right.

When To Use A Credit Card

The biggest difference between a line of credit and a credit card is convenience. Credit cards are designed to make retail purchases easy. Most businesses these days are equipped to swipe your card (or read your chip) at the point of sale. With some rare exceptions, it’s not easy to apply for a loan at the time of purchase.

Credit cards are also more ubiquitous in this card-driven online market. Chances are you’ve regularly used your credit card on Amazon, to pay your cell phone bill, or make a security deposit. It’s just as easy to use your credit card for common expenses. In fact, credit card companies try to encourage you to do so through reward programs. The terms of these programs vary, but essentially they all return a small percentage of the money you spend in the form of statement credit, cash, gift certificates, or other products.

Another perk you’ll see with credit cards that you won’t often get with lines of credit are introductory offers like 0% APRs. If your card is still within that introductory window and you expect you’ll be paying your bill off over the course of several months, the credit card is a clear winner.

When To Use A Line Of Credit

At this point, it may look like credit cards have a clear advantage over lines of credit. Not so fast.

One thing credit cards are really inefficient at is cash transactions. Most credit cards will only let you cash advance a fraction of your total limits. Even then you’ll usually incur very high-interest fees on that cash.

Lines of credit, on the other hand, are convenient whenever you need to produce a good chunk of cash on short notice. You won’t incur premium fees for withdrawing that money and you won’t be limited to only a fraction of your credit limit.

A line of credit’s lower interest rates may also make it preferable when we’re talking about big ticket items you can’t pay off quickly. If you’re using your credit card optimally, you shouldn’t be paying any interest on it at all; you’ll be paying it off in full each month. If you can’t do that, a line of credit may often be cheaper over the long run and have a more structured repayment scheme than a credit card.

Final Thoughts

Credit cards and lines of credit can both provide additional financial heft for your business. Knowing when to use each one could make the difference between convenience and unnecessary debt for your business.

Check out our comparison features if you need help finding a credit card or a line of credit.

The post Should You Pay For Business Expenses With A Line Of Credit Or A Credit Card? appeared first on Merchant Maverick.

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A Guide To Using Personal Credit Cards For Business Expenses

personal credit cards

It may seem most natural to use a business credit card when you’re making purchases on behalf of a business — whether it’s your business or you’re an employee — but there’s a good case to be made for using personal credit cards to cover business expenses instead.

For one thing, the CARD Act of 2009 provides a number of legal protections to users of personal credit cards — legal protections that don’t apply to business card users. If you use a personal card, you can’t have your introductory APR revoked before six months have passed, nor can you be charged excessive fees for minor infractions. You also can’t have your APR raised without first having 45 days’ notice of the change. While business card issuers often extend these protections to consumers as a courtesy, this isn’t a universal practice.

You might also find that the rewards programs associated with personal credit cards fit your spending patterns more closely than the incentive programs of business card issuers. Whatever the reason, using a personal credit card to cover business purchases is a common practice, and there’s nothing inherently wrong with it. However, that’s not to say there aren’t any pitfalls to avoid.

Here are some tips for using personal credit cards to cover business expenses.

Use A Separate Card For Business

One thing you’ll want to avoid is comingling business and personal expenses. A good way to avoid this is to use a separate credit card for your business purchases, even if that card is a personal card. This way, you won’t have to go through all your purchases one-by-one on your existing personal card to determine which purchases were business-related and which weren’t.

Keeping your business purchases exclusively confined to one card is helpful in a number of ways. If you’re an employee, you’ll be able to report your business expenditures more easily. And regardless of whether you’re an employee or the owner of a business, confining your business purchases to one separate card will make dealing with the IRS less painful in the event of an audit. If you charge business and personal expenses on the same card, you may have a harder time proving to the IRS that your business charges really were business charges.

Don’t Use Your Debit Card

Even if you don’t get a separate card for business use, whatever you do, don’t make business purchases on your debit card. Doing so is a good way to get a hold placed on your own money.

Entities like hotels and rental car agencies will typically place a hold on your card — often for hundreds of dollars. In this way, work-related purchases can end up sapping your personal funds. Don’t do it!

Be Wary Of Affecting Your Personal Credit Score

Even if you use a separate personal credit card for all your business-related expenses, know that you can negatively impact your personal credit score with your business purchases. If you charge a large business purchase to your card, your credit utilization ratio will be affected until you get reimbursed (your credit utilization ratio is the amount of debt you have vs. the amount of your credit limit).

For this reason, if you’re applying for a loan of some kind, you might want to avoid doing so while you have a large as-yet-unreimbursed business expense on your card. If you do, you may well end up paying a higher interest rate on your loan.

Pay Off Your Card As Soon As You’re Reimbursed

A recent report from CareerBuilder found that 78% of full-time workers in the US live paycheck-to-paycheck. With this as our grim reality, it’s no wonder that many workers are tempted to use their reimbursement funds to pay other bills. However, you should really avoid doing this if at all possible.

If you don’t pay down your card with your full reimbursement amount, you’ll be paying interest on a purchase that wasn’t even for you. Unless doing so would make you homeless, pay off that card as soon as you get that reimbursement check. Otherwise, you’re just throwing money away in the form of interest payments.

Record Everything

A good way to both streamline the reimbursement process and satisfy the IRS in the event of an audit is to be fastidious about record-keeping. Use a smartphone app to save pictures of receipts from all your business purchases, along with pictures of the reimbursement checks you receive (or screenshots of the direct deposit).

You may even want to jot down additional information on your business receipts before archiving them, such as those who were with you and the date/time of the transaction. Generally, the more information you can provide about your business purchases, the better — whether it be to the IRS, or if you’re an employee, to your boss.

Pick The Personal Card That Fits Your Business Spending Profile

Naturally, when you’re considering which credit card to use for business expenses, you’ll be comparing interest rates and fees as you seek the best deal. However, don’t forget to compare the rewards programs of the personal cards you’re considering as well.

The nature of your business will determine the sort of items and services you’ll be charging to your new card, so be sure to choose a card with rewards that align with your anticipated business expenses.

Use It Or Lose It

If you get a personal credit card to use for business expenses, make sure to actually use it. If you go for a long period of time without charging anything to the card, your credit card issuer might shut down your account due to inactivity. This can negatively impact your credit score.

Try To Get Reimbursed As Soon As Possible

If you’ve ever been in a company where you’re expected to cover business expenses, you know how frustrating it can be when your reimbursement doesn’t come in a timely manner. It obviously impacts the amount of credit you have available, and — as I’ve discussed — can affect your credit utilization ratio as well.

Try to ensure that your company’s reimbursement policies are reasonable before agreeing to make business purchases on behalf of the company. And if your reimbursement is delayed and you have to pay finance charges as a result, insist on being reimbursed for that as well. No employee should be made to suffer negative consequences as a result of a company’s lackadaisical reimbursement practices.

Final Thoughts

For both business owners and employees, it’s perfectly reasonable to use a personal credit card to cover business expenses. By following these rules of thumb, you can avoid taking a personal financial hit when charging business expenses to your personal credit card.

The post A Guide To Using Personal Credit Cards For Business Expenses appeared first on Merchant Maverick.

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The Best Cash Back Business Credit Cards

A business credit card is an incredibly valuable tool for small companies. It allows you to keep your business spending separate from your personal charges, and to extend purchasing power to your employees. Furthermore, the right small business credit card can offer you valuable rewards in the form of points, miles, or cash back.

The ability to earn points and miles has its benefits, but many business people still prefer to receive cash back rewards from their credit card. Cash back can be used for anything and is never subject to the whims of the airlines and hotels, which frequently change the terms and conditions of their loyalty programs to make points and miles less valuable. And with cash back cards becoming increasingly competitive, now is the time to look for a card that can offer you the most rewards for your business spending.

Which Kind Of Cash Back Card Should You Choose?

Cash back cards for small businesses can be divided into two different categories. First, there are the cards that offer a single rate of return on all purchases, typically between 1% and 2%. Then there are the small business cards that offer bonus cash back on specific qualifying purchases while earning just 1% on everything else. To make this more complicated, many cards restrict the total dollar amount of purchases each year that qualify for the bonus, and you’ll earn just 1% back on all subsequent purchases. These limits can be imposed based on the calendar year or the cardmember year.

Here’s a list of the best cash back business credit cards. First, we’ll look at the ones that offer strong rewards on everything you buy, followed by those that feature bonus rewards on some purchases.

Cards That Offer The Same Cash Back Rewards On All Purchases

Some small business owners are content to use the same cash back rewards credit card for all purchases and want to earn the highest rate of return they can without having to worry about bonuses. In the past, it was common for small business cards to offer a mere 1% cash back on all purchases, but that is no longer considered to be a competitive rate of return.

Today, the best small business cash back cards that offer the same rewards on all purchases will give you at least 1.5% cash back. Some of these cards will do so with no annual fee, but you should expect to pay more for cards that offer higher returns. It also makes sense to look at the benefits offered by these cards, as well as other possible fees, such as those for foreign transactions.

Capital One Spark Cash

Capital One Spark Cash
capital one spark cash select
Annual Fee $95 ($0 the first year)
APR Variable, 18.24%
Signup Bonus $500 cash back
Rewards 2% cash back on all eligible purchases
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Capital One offers a full line of small business credit cards under its Spark brand, which includes cards that offer points towards travel or cash back. The Capital One Spark Cash small business card offers you 2% cash back on all purchases, with no limits. New cardholders can also earn $500 in cash back after using their card to spend $450 within three months of account opening, one of the best cash back sign-up bonuses offered anywhere. Other benefits include free employee cards as well as quarterly and annual spending reports. Your purchases are also covered by damage and theft protection policies for their first 90 days, and an extended warranty that can add one year to your manufacturer’s warranty.

As part of the Visa Signature program, the Capital One Spark Cash also offers a range of travel and shopping benefits and discounts. For example, you can receive a third night free and premium benefits at luxury hotels around the world as part of the Visa Signature Luxury Hotel collection. The $95 annual fee for this card is waived the first year, and as with all Capital One cards, there are never any foreign transaction fees.

Capital One Spark Cash Select

Capital One Spark Cash Select
capital one spark cash select
Annual Fee $0
APR Variable, 14.24% – 22.24% (0% introductory APR for the first 9 months)
Signup Bonus $200 cash back
Rewards 1.5% cash back on all eligible purchases
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This card is very similar to the standard Capital One Spark card, but it offers 1.5% cash back on all purchases with no annual fee. Therefore, this card makes the most sense for those who have more modest spending requirements that don’t justify the annual fee of the standard Spark Cash card.

With this version, new cardholders can earn a $200 cash bonus when they spend $3,000 on their card within three months of account opening. It includes many of the same benefits as the standard Spark Cash card, such as purchase protection and extended warranty coverage. It’s even part of the Visa Signature program, which is rare for a card with no annual fee.

The Plum Card From American Express

The Plum Card from American Express
Annual Fee $250 ($0 for the first year)
APR No APR — charge card
Signup Bonus None
Rewards 1.5% discount when you pay early
60 days to pay purchases that you put on your card
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This small business card offers you cash back in a unique way. First, the Plum Card from American Express is a charge card, not a credit card, so you are required to pay your entire statement balance in full, every month. But when you make your payment within 10 days of your statement closing, you’ll receive 1.5% cash back on all of your purchases. Alternatively, you can take up to 60 days to pay your balance, but without receiving any cash back. This card makes sense for small business owners who may prefer to earn rewards some months and help manage their cash flow and extend payment at other times.

New applicants can earn up to $600 in cash back, but with a large minimum spending requirement. You will earn a $200 statement credit after each $10,000 you spend on the card, up to $30,000, within the first three months of opening your account.

Other benefits include extended warranty coverage and a purchase protection program. The card also comes with an account manager feature that lets you delegate a trusted individual that can manage your business card.

American Express small business cards participate in the OPEN Savings program, which offers discounts on purchases from FedEx Express and FedEx Ground, Hertz®, HP.com, and others. The $250 annual fee is waived the first year, and there are no foreign transaction fees.

Wells Fargo Business Platinum Credit Card

Wells Fargo Business Platinum
Annual Fee $0
APR Variable, 12.49% – 22.49% (0% introductory APR for the first 9 months)
Signup Bonus $500 cash back
Rewards 1.5% cash back on all eligible purchases
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This card features 1.5% cash back on all purchases and has no annual fee. New accounts can earn $500 in bonus cash back after spending $5,000 within three months. Cash back can be applied automatically as a credit to your account or deposited to your eligible checking or savings account each quarter. Or, you can receive your rewards in the form of points that can be redeemed for merchandise, gift cards, or airline tickets, with a 10% bonus when you redeem your points online.

This card also features cash management tools and spending reports that are available online. There’s no annual fee, and you can add up to 99 additional employee cards at no extra cost. There are also no foreign transaction fees.

Cards That Offer Bonus Cash Back Rewards On Some Purchases

When you have a small business rewards card that offers you the same amount of cash back for all purchases, the most you can possibly get is 2%. But when your small business card offers you bonus rewards for buying certain items, it’s possible to earn as much as 5% cash back on some of the purchases you make the most. As a trade-off, you’ll only earn 1% cash back on all purchases that don’t qualify for a bonus.

Other factors you should consider when choosing one of these reward cards are which purchases will qualify for the bonus and any annual maximums on eligible rewards. For example, some credit cards will offer bonuses that are limited to qualifying purchases in the United States only, while others don’t have any restrictions transactions made in other countries. Furthermore, many of the most generous bonuses come with annual limits, after which you’ll only receive 1% cash back. These limits can be relatively large, such as $250,000 in annual purchases, or they can be limited to as little as $25,000 in qualifying purchases each year. 

Costco Anywhere Visa® Business Card By Citi

Costco Anywhere Visa® Business Card By Citi
Annual Fee $0 (but must have a Costco membership)
APR Variable, 16.49% (0% introductory APR for the first 7 months)
Signup Bonus None
Rewards 4% cash back at gas stations (max $7,000 per year)
3% cash back on restaurants and travel
2% cash back on purchases from Costco in-store and online
1% cash back on all other purchases
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Costco stores are known for their low prices on bulk goods, and this model also appeals to small business owners. The Costco Anywhere Visa® Business Card from Citi is one of the strongest cash back small business cards that offers bonuses on many purchases. With this card, you can earn 4% cash back on your first $7,000 spent each year on gas purchases, including those from Costco, and 1% after that. You also earn 3% cash back on all restaurant and travel purchases worldwide, 2% cash back from all Costco purchases and 1% cash back everywhere else.

This card includes damage and theft protection that covers your eligible purchases for 120 days (90 days for New York residents) as well as an extended warranty policy that can add a year to your manufacturer’s warranty. You also receive worldwide auto rental insurance, travel accident insurance and access to a travel and emergency assistance hotline. There’s no annual fee for this card with your paid Costco membership and no foreign transaction fees.

Simplycash Plus from American Express

Simplycash Plus from American Express
Annual Fee $0
APR Variable, 13.49% – 20.49% (0% introductory APR for the first 9 months)
Signup Bonus None
Rewards 5% cash back on office supply stores and wireless telephone services (up to $50,000 per year)
3% cash back on a category of your choosing – see below (up to $50,000 per year)
1% cash back on all other purchases
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This small business card offers a high level of bonus rewards on some of your most frequent business purchases, and with no annual fee. You’ll get 5% cash back at US office supply stores and on wireless telephone services purchased directly from US service providers. You can also receive 3% cash back on the category of your choice from a list of select categories, including:

  • Airfare purchased directly from airlines
  • Hotel rooms purchased directly from hotels
  • Car rentals purchased from select car rental companies
  • US gas stations
  • US restaurants
  • US purchases for advertising in select media
  • US purchases for shipping
  • US computer hardware, software, and cloud computing purchases made directly from select providers.

The 5% and 3% cash back offers only apply to your first $50,000 in purchases each calendar year, and you’ll earn 1% thereafter. Note that the cash back earned is automatically credited to your statement each month.

This card also includes 9 months of interest-free financing on new purchases before the standard interest rate applies. Other benefits include a roadside assistance plan, a baggage insurance policy, and car rental insurance. Your purchases will be covered by an extended warranty policy as well as a damage and theft protection plan. There’s no annual fee for this card, but there is a 2.7% foreign transaction fee imposed on all charges processed outside of the United States.

Ink Business Preferred Card From Chase

Ink Business Preferred from Chase
Annual Fee $95
APR Variable, 17.24% – 22.24%
Signup Bonus 80,000 points
Rewards 3 pts./$1 for travel; shipping; internet, cable, and phone; and social media and search engine advertising (up to $150,000 per year)
1 pt./$1 on all other purchases
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This premium small business card from Chase offers Ultimate Rewards points, and you have the option of redeeming them for cash back or other options. New accounts can earn 80,000 bonus points after spending $5,000 within three months of account opening. You’ll also earn three points per dollar on your first $150,000 spent in each account anniversary year in combined purchases on travel, purchases, internet service, cable and phone services, and on advertising purchases made with social media sites and search engines. You can earn one point per dollar spent on all other purchases.

Points can be redeemed for one cent each as cash back or statement credits. Other options include transferring your points to miles with nine different frequent flyer programs or using points with four different hotel programs. Notably, your points are worth 25% more when you make travel reservations through the Chase Ultimate Rewards travel center. Finally, points can be redeemed for approximately one cent each towards merchandise or gift cards.

Also included in this card’s benefits are trip Interruption and trip cancellation insurance, and a cell phone protection plan. You’ll receive accidental theft and damage insurance, as well as an extended warranty policy that can add up to a year of coverage to your manufacturer’s warranty. This card has a $95 annual fee and no foreign transaction fees.

The Ink Business Cash Card From Chase

The Ink Business Cash from Chase
 
Annual Fee $0
APR Variable, 14.49% – 20.49% (0% introductory APR for the first 12 months)
Signup Bonus $300 cash bonus
Rewards 5% cash back on office supply stores and internet/phone/cable purchases (up to $25,000 per year)
2% cash back on gas stations and restaurants (up to $25,000 per year)
1% cash back on all other purchases
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This entry-level small business card offers you 5% cash back on your first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year. You’ll earn 2% cash back on your first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year, and 1% cash back on all other purchases.

Benefits include purchase protection and extended warranty coverage. When traveling, you also have access to travel and emergency assistance services, as well as a roadside dispatch hotline. There’s no annual fee for this card, but a 3% foreign transaction fee is imposed on charges processed outside of the United States.

The Business Advantage Cash Rewards Mastercard From Bank Of America

The Business Advantage Cash Rewards Mastercard from Bank of America
Annual Fee $0
APR Variable, 12.49% – 22.49% (0% introductory APR for the first 9 months)
Signup Bonus $200 cash back
Rewards 3 pts./$1 for gas stations and office supply stores (up to $250,000 per year)
2 pts./$1 on restaurants
1 pt./$1 on all other purchases
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This small business credit card can offer you up to 3% cash back on some of your business purchases. You’ll earn 3% cash back at gas stations and at office supply stores on up to $250,000 spent each year, and 1% cash back after that. You also earn 2% cash back on purchases at restaurants and 1% cash back on all other purchases.

New accounts can earn $200 in cash back after spending $500 within 60 days of account opening. New accounts will also receive nine months of 0% APR financing on new purchases before the standard interest rate begins to apply.

Points are available for cash back after earning $25, and you can choose to redeem your rewards as a statement credit or have cash deposited into a Bank of America small business checking or savings account. There’s no annual fee for this card, but it does have a 3% foreign transaction fee.

Final Thoughts

For a concept as simple as cash back, there are actually quite a lot of different small business credit card offers available. It’s important to do your research and select the one that will offer you the most benefits. While some small business owners will need to choose between cards with bonus offers and those without, others may be able to maximize cash back by carrying at least one of each. Closely examine the features and benefits of each of the cards above, and you’ll have all the information you need to find the card that best meets the needs of your business.

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5 Things You Didn’t Know About Credit Cards


Image of hands holding credit card and pressing a keys of keyboard

Credit cards are a common sight in wallets and purses, used for nearly a third of all in-person purchases. There’s nothing strange or novel about them.

And yet, despite their ubiquity, there are a lot of misconceptions about how credit cards work and the best way to use them. Should you use them regularly, or only for infrequent, major purchases? Do they help or harm your credit?

Here are five things you may not know about credit cards.

1. There’s No Reason To Carry A Balance If You Don’t Need To

One of the most common bits of conventional wisdom regarding credit cards is just wrong — a lesson I learned all too recently

You’ve probably heard at some point that it’s good to carry a small balance on your card every month, ostensibly to build your credit and keep your credit card company happy. Turns out that’s completely false. Personal credit cards are required to give you a 21-day or more grace period before they can start charging interest on a purchase. Business credit cards don’t have that hard and fast guideline (see below), but they usually do extend a grace period as a courtesy. If you pay your balance off within that time, you won’t owe any interest on your purchase and you’ll still earn whatever reward points your card offers.

But might your credit card company cancel your card if you don’t pay them interest? It’s unlikely. The company still makes money off transaction fees when you swipe your card.

Now, there are times you may find it convenient to put a big purchase on your card and pay it off slowly. There’s nothing wrong with that — just know that you’re not achieving any greater ends by delaying repayment.

2. Your Card May Be Canceled If You Don’t Use It

Since you now know you can safely use your credit card without paying interest, you don’t have to be scared of using it. Which is a good thing!  If you don’t use your card, your credit card company may simply cancel it.

There’s no telling when or if that will happen, but if you haven’t used your card in a couple months, the chances of your card being canceled increase.

If your card is canceled, don’t take it personally. You didn’t do anything “wrong,” you just weren’t making your credit card company any money. It’s often possible to get the decision reversed with a timely phone call.

3. Most Rewards Cards Are Cash Back (Even If They Aren’t Called Cash Back Cards)

Credit card rewards systems can be divided into a number of different categories, but one of the oldest and most popular is the cash back card. It’s a simple reward structure. For every dollar you spend, a small percentage of that payment is returned to you in the form of statement credit, a check, or a gift card.

Turns out most reward cards will let you cash in accumulated reward points for statement credit, even if they aren’t cash back cards. This can be handy when you simply need to shave a few dollars off of your statement for the month.

So why would you ever get a cash back card? Cash back cards tend to reward generic purchases at a higher rate than other reward schemes, which give you a higher return for buying specific types of goods and services (flights, hotel stays, office supplies, etc.). If your purchases are concentrated in a particular area, you may want a rewards card. If there’s not much of a pattern, consider a cash back card.

4. Business Credit Cards Play By A Different Set Of Rules

In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure (CARD) Act. The legislation established standards for personal credit cards. These include things like:

  • Giving customers enough time to pay their bills.
  • No retroactive rate increases.
  • Payments are applied to the highest-interest debt first.

They’re great protections for credit card users. And they don’t apply to business credit cards.

Business credit cards are still something of a wild frontier, with terms and rates that can change with little notice. To entice customers into this riskier landscape, credit card companies will usually reserve their best reward programs for business credit cards. If you’re someone who reliably pays off your credit card every month, the risks are small. If you carry balances — and especially if you miss payments — you may find yourself facing very unfavorable terms.

5. You Don’t Have To Own A Business To Get A Business Credit Card

Just like there’s no duck in that packet of duck sauce, there’s no business in business credit cards. Okay, that analogy isn’t great, but the fact remains that (most) business credit cards can be acquired by individuals who don’t actually have businesses.

In fact, even if you do have a business, you have to sign a personal guarantee to get a business credit card. That means you are personally accepting liability for the debt, which essentially waives the financial partition you would otherwise enjoy between your business and yourself if you were incorporated.

On the other hand, if you’re purchasing a high volume of goods and services as an individual and want to cash in on business card rewards and perks, you’re able to do so.

If you want a credit card that respects corporate protections, what you need is a corporate credit card. Just be aware that you’ll have to be doing over $4 million/year in revenue to qualify for most of them.

Final Thoughts

Hopefully, you’ve found one or more of these credit card tidbits illuminating and have some new ideas about how to make the best use of your plastic.

If you’re looking for a card for your business, check out our business and personal credit card comparisons.

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How To Find A Startup Grant

business grants

Startups are inherently risky endeavors. According to Fortune Magazine, close to 60% of new startups fail. Because new businesses are so risky, it is notoriously difficult to obtain startup financing — most banks won’t lend to you unless you’ve been in business at least two years. While some online lenders offer startup loans, startup grants are another option for new business financing. A startup grant is even harder to get than a startup loan, but grants are more desirable because you don’t have to pay the money back.

Want a shot at a startup grant? Follow these steps to find a business grant you might qualify for.

1. Determine Whether You’re Grant-Worthy

Generally, only certain types of businesses qualify for startup grants. If your biz doesn’t fall into one of these categories, it’s unlikely you’ll qualify. For example, while there may be grant money for an innovative hardware manufacturer, when it comes to a run-of-the-mill hardware store…eh, not so much. Then again, if you face the significant hurdles of having a female-owned hardware store opening up shop in an economically distressed region, it’s a lot more likely that a private or public entity might want to give you some free money.

Read my post Do I Qualify For A Startup Grant? to determine if your business falls into one of the industries likely to qualify for startup grant funds. If not, you might want to start considering other alternative financing options, such as crowdfunding.

2. Start Local

City and township governments, business associations, and nonprofits in your immediate region are good places to start looking for grants. Even if you determine that your business doesn’t fit into one of the “grant-worthy” categories I mentioned above, you might be eligible for a grant if you’re starting a business in a certain city or region. For example, the Arch Grants organization awards grants to new businesses in the St. Louis area. There are not too many of these sorts of grants, but it’s always worth checking.

Be sure to scan city, county, and state websites for grant opportunities, as well as your local Chamber of Commerce. If you’re willing to relocate, you can also check local business grant opportunities in the city or cities you’d consider moving to.

3. Search Your Niche

If you can’t find any grant opportunities for businesses in your area, you can search grants by niche; that is, by your particular industry or business type. Your startup may fall into multiple niches — for example, your business may be veteran-owned and also a clean-energy business. Simply searching a phrase like “business grants for green construction” or “grants for home daycare” may deliver results tailored to your specific business niche.

Sometimes grants are for a particular niche and also a particular region. A couple examples of niche business grants include the Halstead Grant for new silver jewelry designers living anywhere in the US, and the Green Technology Business Grant Program for green technology startups in Cleveland, Ohio.

4. Go Corporate

Several large corporations offer business grants or host some kind of small business contest where the best businesses can win free money. These grant programs are highly publicized and thus highly competitive, but they might be worth looking into. FedEx, Miller Lite, and Visa are a few corporations that award business grants; Miller Lite’s grant contest is especially aimed at startups.

Even some popular business lenders offer business grant contests. Veteran-owned businesses, for example, should look into StreetShares‘ annual business contest for veterans.

5. Look At A Federal Level

Small businesses can potentially find grants they are eligible for on Grants.gov, the one-stop-shop for government grants. However, you should know that the vast majority of these are medical research grants. Also, even if you’re eligible for one of these prized federal grants, you’ll likely be competing with nonprofit organizations, and even city and state governments. The reason I listed federal grants last is that there are few, if any, federal grants a typical startup business would be eligible for.

However, at least a couple federal grants are aimed at innovative small businesses, and these are Small Business Innovation Research (SBIR) grants for high-tech businesses involved in scientific research & development. The InnovateHER grant contest is for businesses that benefit women and children.

This blog post on the SBA website explains a little more about US government grants and how most are not really aimed at for-profit businesses. If you want some government help in funding your small business, you might want to look into a Small Business Administration (SBA) loan. These loans are low-interest and relatively easy to apply for if you use an online SBA lender like SmartBiz.

Final Considerations

Once you find a list of startup grants you’re eligible for, the next step is to start preparing your grant application package. The application process is slightly different for each type of grant, but usually you will have to submit a business plan and Request for Proposal (RFP). For a large grant, you might even consider hiring a professional grant writer, though this probably wouldn’t be feasible or necessary for a grant contest where you only stand to win $2,000-$5,000, even after beating out thousands of other applicants.

The last thing I’d recommend to anyone searching for startup grants is to review startup grant alternatives, such as small business loans or alternative business financing options like P2P loans or equipment financing. If you have any questions about startup loans or alternative business financing, feel free to email us or ask in the comments!

The post How To Find A Startup Grant appeared first on Merchant Maverick.

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Choosing An American Express Corporate Card

American Express Website Menu

Unlike their small business counterparts, corporate cards are highly customizable. When it comes to Visa and Mastercard, your corporate card benefits will largely be based on the arrangements you make with your bank. American Express, however, directly issues corporate cards, so you can do more comparing upfront than you otherwise could with a Visa or Mastercard.

How Do Amex Corporate Charge Cards Work?

For the most part, corporate cards are scaled-up versions of Amex’s personal and business credit cards, tailored to meet the needs of a larger business. To get a corporate card, your company will need to be formally incorporated as an LLC, S-Corp, or C-Corp. It will also need to have good credit and do over $4 million in revenue annually.

Be aware that Amex’s rewards system works a little differently for corporate cards. You won’t automatically be enrolled in the Corporate Membership Rewards program. You’ll have to sign up for the program and designate a primary account as the Master Program Administrator (MPA). The MPA can then designate up to five corporate cards for the program, including their own as program administrator (PA). These cardholders will have permission to redeem rewards. Three more cardholders can be designated as offline redeemers; these people can redeem points for certificates, gift cards, statement credit, and pay-with-points through telephone request only.

Up to 98 cards in total can be enrolled in a single Corporate Membership Rewards program. Unlike business and personal cards, there are no reward tiers. You spend $1, you get 1 point. The redemption value of a point varies depending on how you spend your rewards. For example, 20,000 points translate to a $100 statement credit ($0.005 per point).

Now that we know how American Express corporate cards work on a basic level, let’s compare some specific corporate cards.

American Express Corporate Platinum

The prestige charge card of the Amex brand has long been Platinum. Like its personal and business counterparts, the Corporate Platinum card is centered around international travel and resort stays.

American Express Corporate Platinum
Annual Fee $395/card
APR N/A
Corporate Membership Reward Cost Per Card $0
Visit Site

If you like the Amex Platinum perks and have the annual revenue to qualify, the Corporate Platinum card is actually the cheapest version, at least on a per card basis. The personal and business cards come with annual fees of $550 and $450, respectively. Of course, $395 per card can add up pretty quickly, so you probably won’t be handing one of these to every employee in your organization.

Each employee with a Corporate Platinum card will enjoy the following perks:

  • Lounge Access: Access to all locations of The Centurion Lounge. Access to Delta Sky Clubs, Priority Pass Select, and Airspace Lounges.
  • $100 Airline Fee Credit: Amex will reimburse the cardholder up to $100/yr. for incidental flight charges with a qualifying, selected airline.
  • Fine Hotels & Resorts Program: Members who pay in full with their Platinum Card receive complimentary upgrades and services at participating locations, subject to availability. This includes things like in-room Wi-Fi, breakfast amenities, room upgrades, and noon check-ins.
  • Fee Credit For Global Entry Or TSA Prev: Cardholders get one statement credit per four years for an application fee charged to the card.

American Express Corporate Gold

If the Corporate Platinum card is meant to keep the globetrotting, pampered executive in style, the Corporate Gold card is more oriented toward helping workers stay productive on the road.

American Express Corporate Gold
Annual Fee $125/card
APR N/A
Corporate Membership Reward Cost Per Card $90
Visit Site

You can get three Corporate Gold cards for the price of a single Corporate Platinum card, so it’s a good choice for frugal corporations that want to reap Amex travel benefits for a large number of employees without breaking the bank. Unfortunately, you’ll have to pay a surcharge on each card you enroll in the Corporate Membership Reward program. If you also factor in the $100 airline credit you get with the Platinum Card, the savings you’d get from going with the Gold Card evaporate pretty quickly. On the other hand, you may prefer the a la carte approach to your benefits.

Each employee with a Corporate Gold Card will enjoy the following perks:

  • Fee Credit For Global Entry Or TSA Prev: Cardholders get one statement credit per four years for an application fee charged to the card.
  • Boingo American Express Preferred Plan: Complimentary, unlimited Wi-Fi access at Boingo hotspots. You’ll also give five in-flight internet passes each year.

American Express Corporate Green Card

The Corporate Green Card is marketed toward occasional travelers and core employees. You won’t find a ton of frills here, but the Green Card may align with certain spending strategies.

American Express Corporate Green
Annual Fee $55/card
APR N/A
Corporate Membership Reward Cost Per Card $90
Visit Site

The Corporate Green Card’s benefits are pretty sparse and enrolling in the reward’s program ends up being more expensive than your annual fee, so you’ll probably only be passing these out to streamline your employees’ travel expenses.

Each employee with a Corporate Gold Card will enjoy the following perks:

  • Business Travel Accident Insurance: Covers flights, cruises, train, or bus travel charged on the card
  • Baggage Insurance: Covers lost, stolen, or damaged baggage on flights, cruises, trains, or bus trip charged on the card.

American Express Business Extra Corporate Card

The Business Extra Card is specifically focused on corporations that use American Airlines and its partner carriers.

American Express Business Extra Corporate Card
Annual Fee Up to $55/card
APR N/A
Corporate Membership Reward Cost Per Card N/A
Visit Site

Unlike the other three cards we’ve covered, the Business Extra Corporate Card comes with its own rewards program and is ineligible for the Corporate Membership Reward Program. If you don’t mind sacrificing the flexibility, it offers some nice perks at a low cost.

Each employee with a Corporate Gold Card will enjoy the following perks:

  • American Express Busines Extra Rebate: 1% – 4% rebate on the first $1.5 million spent on qualifying American Airlines flights.
  • Business Extra Reward Program: Your cards will be enrolled in this reward program. You’ll also get four points for every $20 spent on eligible American Airlines flights and one point per $20 spent on other eligible purchases.
  • American Airlines Flight Discounts: $50 discount for every $5,000 of eligible purchases, up to a maximum of $1,000 in discounts each year.

Final Thoughts

American Express’s Corporate Card offerings provide several different ways for large corporations to optimize their travel spending. Since they’re mostly just scaled-up versions of existing cards, smaller businesses that grow into larger corporations may find it easy to transition from business to corporate class cards.

Not big enough for a corporate card? Check out our comparison guides to business credit cards, charge cards, and personal cards that are good for business expenses.

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A Guide To Choosing The Best Corporate Credit Cards

Man hands over credit cards for payment

It’s not hard to find articles that compare personal or business credit cards. But where are the ones comparing corporate credit cards?

At the corporate scale, you aren’t usually dealing with pre-designed deals and packages. If you’re big enough to qualify for a corporate account, your business likely has complex and very specific needs. The arrangements you make with your issuing financial institution will probably be unique to your company.

As you can imagine, this makes it very difficult to definitively rank corporate cards. Two businesses may get a corporate card from the same bank and have significantly different terms on their card.

Since we can’t tell you which card is the best for your particular situation, we’ll look at the factors that you should keep in mind when you’re evaluating your corporate credit card offer.

What Are Your Responsibilities?

Most corporate credit cards will require your company to meet some prerequisites to obtain and keep a card. These usually include:

  • Earning over $4 million in revenue annually
  • Opening a minimum number of cards on the corporate account
  • Paying any applicable annual fees

You’ll want to evaluate the costs of the annual fee, which typically consists of a base fee and an additional per card fee. While these fees won’t break the bank for a company earning over $4 million, you don’t want to have to pay more than necessary for the perks you receive.

Who Is The Credit Card Provider?

Visa, Mastercard, and American Express all offer corporate credit cards.

As is the case with personal and small business cards, Visa and Mastercard don’t issue the cards directly, instead selling their services to banking institutions, which in turn issue you a corporate card. Some of the benefits offered by your card will be common to all Visa or Mastercard corporate cards. These include things like auto rental coverage and aspects of your customer service. Overall, the banking institution you choose will be a bigger factor for what services you receive than whether your card is serviced by Visa or Mastercard.

American Express, on the other hand, directly issues their cards. Amex corporate offerings will be more familiar to you if you’ve ever perused their personal and business credit cards. In fact, you’ll notice that their corporate cards are largely scaled-up versions of their personal and business credit cards — there’s a corporate Platinum Card, for example.

How Does The Auto Rental Collision Damage Waiver Work?

Commercial vehicle rental coverage is offered with most corporate cards. This is usually offered through the credit card company itself rather than the issuing bank.

These programs will usually cover collision and theft of the vehicle, but not necessarily any contents within the cars. There are restrictions on what types of vehicles are covered and under what circumstances. For example, Visa will cover SUVs, but only so long as they are road-safe.

You’ll also want to know how the coverage works both within the United States and internationally. Again using Visa as an example, your damage waiver will function as primary coverage when you’re out of the country and secondary while you’re within. Secondary insurance policies pick up fees and charges that your primary policy does not.

Look over the fine print of your policy, or better yet, have your accounting team do it so that you’ll be able to create guidelines for how your employees should use their coverage to rent vehicles.

How Is The Rewards Program Set Up?

Though they’re not as big of a selling point for corporate credit cards, rewards programs can still add value to your account by returning a percentage of your expenditures back to you as cash, statement credit, gift cards, flyer miles, or points you can spend through other reward programs.

To get the most out of your reward program, you’ll want to know what types of expenses your employees will be putting on their corporate cards. If they’re concentrated in a particular area — like travel expenses — you’ll want a reward card that reimburses those expenses at a high rate.

Do You Want To Make Individual Or Company Payments?

Because corporate cards are meant to be used by multiple employees, there are two different ways to set up your payment systems. You’ll want to be sure your bank offers the setup of your preference.

One configuration is to have the company directly pay the balance on all of the cards. In this case, you’ll probably want to design a policy to determine what types of expenses the cards can be used for.

The other is to have your employees each be responsible for their own cards and then submit expense reports so the company can reimburse them for qualifying expenses.

In both cases, you can work with your issuer to set spending limits.

Final Thoughts

While you can’t directly compare corporate cards the same way you can compare small business and personal cards, you can approach the negotiations with a firm sense of what features and services you want your issuer to offer. Since you’ll be setting policies for employee usage, you’ll want to be able to clearly define when the cards should or shouldn’t be used.

If your business isn’t up to the corporate scale yet, but you’re still looking for a card, check out our small business, personal credit, and charge card guides.

The post A Guide To Choosing The Best Corporate Credit Cards appeared first on Merchant Maverick.

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Is Invoice Factoring Right For Your Small Business?

invoice factoring small businesses

Invoice factoring — selling unpaid invoices to a factoring company in exchange for immediate cash — is a useful financing tool for certain businesses. If your business, like many others, has slow-paying customers that affect your cash flow, invoice factoring might help you manage your finances. But how, exactly, does invoice factoring work? And should your business use factoring services? Keep reading to find out!

Invoice Factoring Basics

Invoice factoring is essentially a sales transaction in which a business sells their unpaid invoices to a factoring company, at a discount, in exchange for immediate cash. Typically, the factoring company will hold a percentage of the invoice value in reserve; when the customer pays, the company will send you that money, less the factoring fee.

Factoring is generally used to solve cash flow problems caused by slow-paying customers. Instead of waiting 60, 90, or even 180 days for a customer to pay, the business can sell the invoice to a factoring company to get the cash needed to maintain business operations or take on new projects.

A factoring arrangement might look like this: You sell an invoice valued at $5,000 to a factoring company. The factoring company sends you $4,500 (90% of the invoice value) and keeps $500 on reserve. Your factoring fee is 0.06% per week. Your customer pays after 35 days, or 5 weeks, so your fee is $180 ($30 per week). The factor deducts their fee, and sends the remaining reserve, totaling $320, to you.

Invoice Factoring Eligibility

If you run a B2B business and you invoice your customers, chances are you’re a good candidate for invoice factoring.

Unlike with many other types of business financing, your business’s revenue and creditworthiness are not especially large considerations when determining eligibility; invoice factors are more concerned with the creditworthiness of your customers because your customers are the ones paying the bills. So, even if you own a young business without a financial track record, or you don’t make very much money, or you have poor personal credit, you might still be eligible for invoice factoring.

Is Invoice Factoring Right For My Business?

You may be eligible for invoice factoring, but should you use a factoring service? There are a lot of pros to factoring your invoices, but it’s not a perfect fit for all businesses. To determine whether factoring is right for your situation, ask yourself these questions:

Are my finances suffering due to slow-paying customers?

Slow-paying customers can affect many areas of your business. If you aren’t paid for your work until months after you have completed the job, you might have trouble meeting business expenses, purchasing inventory and supplies, paying employees, or paying for overhead costs. If this is the case, invoice factoring can be a simple way to ensure that you have the working capital you need.

However, invoice factoring is not always cheap, which is why you need to consider this next question:

Can I afford invoice factoring?

In general, factoring fees (called discount rates) range from about 1% – 6% of the invoice value per month, depending on the particulars of your factoring arrangement and how high-risk your client is. If you sell an invoice from a particularly slow-paying client, and you have a high factoring rate, you could wind up paying around 18% of the invoice value in fees for the opportunity to get your money sooner.

Many invoice factors also charge additional fees for factoring services. You might be charged money transfer fees, servicing fees, monthly minimums, or other expenses, which can add up over time. Head over to our explanation of factoring rates and fees to learn about discount rates and other commonly charged fees.

All that said, your fees will depend on a number of components, including the factoring company you are working with, the creditworthiness of your customers, the number and size of the invoices you want to sell, the industry your business is in, and other considerations. You will have to look at your options and decide whether the cost is worth it to your business.

Even if you decide that you need a financial solution, invoice factors most likely aren’t your only option.

Would an alternative financing solution work better?

Now, more than ever, businesses have a plethora of financial solutions available. While invoice factoring might seem like the perfect solution to your cash flow problems, the following might be a better fit:

  • Asset-Backed Lines Of Credit: These credit lines can be backed by unpaid invoices or (occasionally) assets like inventory or other receivables. The amount you are able to borrow depends on the value of your collateral. Asset-backed lines of credit work similarly to invoice factoring, but might offer more flexibility in some ways. These credit lines also tend to have lower rates than financing that isn’t backed by anything, so you might qualify for low rates and fees in comparison to other options.
  • Revolving Lines Of Credit: With a revolving line of credit, the amount you are able to borrow replenishes as you repay your debts. While some revolving lines of credit are backed by collateral, some simply require you to sign a personal guarantee and/or pledge general business assets via a blanket lien. With this type of financing, you’ll always have money available when you need it. And because you repay weekly or monthly, you don’t have to worry about getting fined because your customers forgot to pay their bills. Head over to our article on business lines of credit to learn more about this type of financing, or scan this list of our favorite lines of credit if you’re interested in learning about your options.
  • Business Credit Cards: Business credit cards can be useful if you need cash short-term for business expenses. You can put many purchases on credit cards and repay them on a timetable that works for you. However — especially if you tend to carry a balance — you might want to consider other options, because credit cards have notoriously high rates and fees. If you’re looking for a business credit card, check out some of our favorites.
  • Small Business Loans: If you only need funds one time, or if you need a large sum of money, a small business loan might be a good bet. Some lenders have long application processes, but many, including PayPal Working Capital and OnDeck, can let you know if you’re eligible within a very short time period. Most small business loans come in the form of installment loans or short-term loans. Small business loans can be used for a number of purposes, such as working capital, payroll, inventory purchasing, and other uses.

Final Thoughts

If you’ve decided that invoice factoring is a potential solution for your business, good for you! Invoice factoring can be a very viable way to maintain cash flow for your business, especially if you tend to get bogged down by slow-paying customers.

Interested in learning more? The following resources provide additional information about invoice factoring and may assist you to find the right factor for your business:

  • A Basic Introduction To Invoice Factoring: Invoice factoring basics, including what to look out for, a basic explanation of fees, and alternative services to factoring
  • Understanding Invoice Factoring Rates & Fees: An in-depth look at factoring rates and fees, including the variables that affect your rates, the three most common fee structures and their differences, and other fees you might have to look out for.
  • Spot Factoring vs. Invoice Factoring: A guide to help you determine whether your business should choose a spot factoring service, a high-volume factoring service, or some other alternative service.
  • Merchant Maverick’s comprehensive reviews of invoice factoring services provide honest and thorough assessments of some of the most popular invoice factoring services available.

The post Is Invoice Factoring Right For Your Small Business? appeared first on Merchant Maverick.

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How To Get A Corporate Credit Card

Paying by credit card concept with businessman keeping credit card in his hand isolated on white background

A corporate credit card may sound like a good fit for your situation, but if you’re like many business owners, you probably aren’t sure where to get started.

After all, personal and small business credit cards are ubiquitous, but you’re unlikely to encounter advertisements for corporate credit cards in your casual travels. You also won’t find easy, online sign-up forms for corporate credit cards.

So how do you go about getting one?

Work For A Corporation That Uses One

This sounds a bit like cheating, but it illustrates an important point about corporate credit cards. A company will usually have multiple copies of a corporate card for use by multiple personnel. In fact, one of the big advantages of corporate cards is that they streamline your company’s incidental and travel expenses.

Of course, this advice only applies to people who would be satisfied with simply having access to a corporate credit card. If you own a company and want to open an account, however, there’s a bit more you’re going to have to do.

Incorporate

As obvious as it may sound, you’ll probably need to, you know, incorporate if you have aspirations toward a corporate card.

Regular small business credit cards require you to give the issuing bank your personal guarantee. That means that the bank can come after your personal assets, not just your business assets, should you default on your debt. This isn’t a great deal, but it comes with one major advantage: you don’t actually have to have a business to qualify for a business credit card. Likewise, you can get one if your business is a simple sole proprietorship with no partition between your personal and business identity.

Corporate cards, however, require your business to be formally incorporated as an S-corp, C-corp, or LLC. Your business is solely responsible for corporate credit card debt — the bank cannot come after your personal assets.

Earn Over $4 Million In Annual Revenue

Sadly, there’s no way around this one. Before most banks will issue you a corporate credit card, you’re going to have to demonstrate that your company is raking in some serious cash. Since the issuer will be dedicating premium customer support services to your company–and without even the protection of a personal guarantee–they’re looking for an account with some serious clout.

This can be a blessing in disguise. Corporate cards come with some significant costs that wouldn’t necessarily scale down well to small businesses anyway.

Find A Bank You Want To Work With

Corporate credit cards are issued primarily by large banking institutions, so there are far fewer options than there are with other credit cards. Since you’ll have access to far more customer service than would a personal or small business credit card holder, you’ll want to research those institutions’ corporate customer service policies and reputation.

Most corporate cards come with rewards programs not unlike those of small business credit cards. You’ll still want to factor rewards programs into your calculations, but given the costs of maintaining a corporate credit card, rewards won’t play as significant a role as they do with the lower-tiered cards.

Many issuers will want you to commit to a minimum number of cards and annual spending, so make sure you know what they expect from you.

Once you know what institution you want to get a card from, you’ll need to reach out to them by phone, in person, or submit an inquiry form to begin the process.

Make Sure Your Company’s Credit Score Is Good

Not to beat a dead horse, but you won’t be able to rely on your personal credit score to get a corporate credit card.

You’ll also want to demonstrate good corporate accounting practices. Banks will want to see good cash flow, for example.

Final Thoughts

Corporate credit cards are an elite product for large, stable businesses with numerous employees. Expect a more involved process than you’d get with a personal or small business credit card.

Haven’t hit $4 million yet and still want a card? Consider a small business credit card or even a personal business credit card.

The post How To Get A Corporate Credit Card appeared first on Merchant Maverick.

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Should My Business Get A Credit Card Or A Charge Card?

When you swipe your card (or insert your EMV chip into the reader), you’ll have pretty much the same experience whether you’re using a credit card or a charge card. So why would you choose one over the other?

Turns out there are some important differences to consider before you sign up for a card.

What Is A Credit Card?

When most people think of paying by plastic, they’re thinking of a credit card. If you’re “paying with Visa or Mastercard,” and you’re not paying with debit, you’re probably using a credit card. But while those two companies control the infrastructure for making credit card payments, they’re not actually the ones extending the credit.

In fact, “extending credit” is the operative phrase when it comes to credit cards. When a bank issues you a credit card, what they’re effectively doing is proffering a revolving line of credit. Unlike a loan, a line of credit can be tapped at any time, for any amount (up to a set credit limit). The “revolving” part means that, as you pay off your balance, that amount becomes available for you to use again.

Like loans, lines of credit (and credit card balances) accumulate interest over time. Credit cards do, however, have grace periods during which the balance can be paid off without accumulating interest. These can be set by law, as is the case for personal credit cards, or extended as a courtesy, as they are for business credit cards. Just be aware that business credit cards can, and often will, change the terms on you with little notice. And many business credit cards will charge an annual fee.

What Is A Charge Card?

Charge cards are a little different. Unlike credit cards, charge cards are not bank-issued. The “lender” in this case is the same as the card company. With rare exceptions, most charge cards these days are issued by American Express.

Charge cards aren’t lines of credit. Instead, you’re paying an annual fee in exchange to be able to defer your payment for 30 days. Your entire balance is due on your statement date, except in cases where you’ve made special arrangements with the issuer. If you miss a payment, you’ll face a punishing wall of fees and possibly cancellation.

The major selling point of charge cards is that they have no credit limit. Conventional wisdom would dictate that you can put as much on your card in any given month as you want, but that isn’t exactly true.

American Express has a policy called No Pre-Set Spending Limit. What this means is that Amex makes a calculation based on your payment history, credit record, and estimated resources and may put a cap on monthly spending. The company estimates that about 10 percent of their customers have a cap at any given time.

How Else Do Credit Cards and Charge Cards Differ?

The remaining differences tend to be more quantitative than qualitative. Both types of cards offer reward programs. Charge cards traditionally had an edge here, but business credit cards have recently caught up, offering comparable reward programs to all but the most elite charge cards.

Because charge cards can’t rely on interest to earn money, they tend to have higher annual fees than similar business credit cards.

When To Choose A Charge Card

No matter which type of card you choose, you should try to pay off the entirety of your balance each month. Since a charge card doesn’t easily let you carry a balance from month-to-month, you’re encouraged to maintain more disciplined spending habits than you might have with a business credit card. If you miss a charge card payment, you’ll feel the consequences right away. This is an important concept when you’re dealing with rewards cards as interest payments can easily neutralize any financial advantage you might get from the rewards.

Additionally, your payment terms will be clearer and less subject to sudden change. There’s less fine print to keep track of. You’ll always have the same number of days to pay of your balance.

Though the ability to buy as much as you want with a credit limit is overstated, you may prefer the softer limits on your spending habits.

Finally, if you like American Express’s rewards programs and perks, you’ll probably want to consider a charge card.

When To Choose A Credit Card

One of the biggest advantages offered by credit cards is that they’re accepted at far more businesses than charge cards, so if you plan to use a card as a primary means of payment, keep that in mind.

The credit card industry is more diverse, with tons of lending institutions offering their own cards and reward programs. While American Express does offer variations on its rewards programs, you won’t find the same level of diversity with charge cards as you will with credit cards.

Of course, credit cards do allow you to carry a balance, which provides a lot of flexibility in when you pay off your balance. This can be as much of a curse as a blessing, however, as it’s easy to let balances linger and accrue interest.

You should generally aim to pay your balance off during your interest-free grace period (as you would with a charge card) to get the most out of your credit card. It’s worth noting that this is easier to do with personal credit cards than with business ones as the latter can change your terms with no notice. Unfortunately, business credit cards also tend to have the better reward programs.

Final Thoughts

Both credit cards and charge cards are convenient ways to pay for expenses without carrying wads of cash or taking out complicated loans. Before you sign up for one kind or the other, take some time to analyze your spending habits and determine what type of card is best for your business.

Not sure where to start looking? Check out our personal and business credit card comparisons, as well as our charge card comparisons.

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