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Small-Business Credit Card Basics: 5 Ways to Get the Most Out of Your Card

Aug. 13, 2015
Small Business
Small-Business Credit Card Basics: 5 Ways to Get the Most Out of Your Card
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Small-business credit cards offer numerous advantages over other financing options; rewards and cash back for spending, 0% interest on purchases, and sign-up bonuses are just a few. But to get the maximum value from your small-business credit card, you have to avoid the costly mistakes that can easily outweigh the card’s benefits.

Here are five ways to get the most out of your small-business credit card.

1. Always, always pay on time

It sounds obvious, but many fail to heed this simple rule, and it costs them. Late fees can range from $15 to $35 or higher, and if you continue to miss the due date, additional fees may be charged.

Paying late may also result in a penalty interest rate (typically 29.9% APR).

For example, if your credit card carries a balance of $10,000 and you’re paying 15% APR, the annual interest cost on this debt is $1,500. Miss a payment, and your yearly interest costs rise to $2,990. After six consecutive months of on-time payments, your card issuer should revoke the penalty APR. You can find the card issuer’s policy on the terms and conditions statement.

Missing payments can also damage your personal and business credit scores, making it harder to get approved for loans and credit in the future and increasing the cost of that debt.

Tip: Consider setting up automatic payments that will deduct money from your bank account each month, or set up personal alerts on your phone or computer to remind you when a payment is due.

If you think you may miss a payment, calling up the card issuer, being honest and asking for a grace period is always worth a try, says Neil Lerner, state associate director of the Wisconsin Small Business Development Center at the Wisconsin School of Business.

“They’re going to find out anyway,” Lerner says.

2. Know when your 0% interest promotion expires

Maybe you like the sound of 0% interest on purchases for 12 months. This type of deal can be really tempting — it’s basically an interest-free loan and can help your business manage a short-term cash shortfall.

Once the 0% APR period ends, however, small-business owners should know what the new interest rate on the card will be. You can find this in your monthly credit card statement under “purchase APR” or on your cardholder agreement. To avoid getting dinged by interest, you’ll need to pay off the entire balance on the card each month before your payment due date. If you have the cash to do so, it’s a wise investment.

“Cash back and other incentives don’t do the business any good if they carry a large balance every month that costs them 14% or 15% interest,” Lerner says.

3. Earn your sign-up bonus

Companies use sign-up bonuses to entice you to apply for their credit cards. The deals can be quite enticing: Who doesn’t want to earn $500 or more in travel rewards, gift cards or a statement credit?

Keep in mind that to get this bonus, you generally need to spend a certain amount of money in a specific time period. For example, a card may offer a $500 cash bonus but only if you spend $5,000 on purchases within the first six months of opening the account.

If you’re nowhere near the spending threshold, don’t overspend just to get the bonus.

4. Maximize rewards, and don’t forget to redeem them

One of the biggest perks of a business credit card is the rewards you get on purchases. Make it a priority to earn them. If your card offers you 5% cash back on purchases at office supply stores or on gas, use your card for those things.

Companies may offer rewards in the form of a gift card, a direct deposit to your bank account or a statement credit, but bear in mind that you may have to log on to an online account to actually redeem those rewards. Do so, or you’ll kick yourself. And stay on top of them because some points or rewards might expire after a certain amount of time, depending on the card issuer.

5. Deduct interest and fees on your taxes

Any interest and late fees paid on your business credit card are deductible on your taxes, as long as the card was used for business purposes, according to Craig Smalley, an accountant and financial advisor based in Orlando, Florida.

“A lot of credit card companies will keep track of what your purchases were, so they’ll send you a year-end statement and categorize everything for you,” Smalley says. “It makes your or your accountant’s job very easy at the end of the year.”

For businesses operating as sole proprietorships, these expenses should be listed on the second page of Schedule C under “interest: other.” For S and C corporations, the expenses would be listed on a Form 1120 under deductions.

The bottom line

Every small-business credit card comes with a unique set of terms and perks. It’s important to take time to compare which is best for your small business. Check out our best business credit cards page to size up of your options.

To get more information about funding options and compare them for your small business, visit NerdWallet’s best business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

Steve Nicastro is a staff writer at NerdWallet, a personal finance website. Email: [email protected]. Twitter: @StevenNicastro.

Image via iStock.