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Managing a company is a lot of responsibility and making the most of it requires some financial knowledge that often includes using credit cards for small business expenses. Luckily, there are numerous financing options available to those who qualify. Alternatively, the prevalence of funding opportunities can make the process of getting the money your business needs quite confusing and difficult to navigate. Understanding both the underwriting process and the pros and cons of using credit card financing can help you make the right decision.
Corporate credit cards are easy to use, but they also require due diligence. Furthermore, they’re not always attainable for small businesses that don’t know how to present themselves to lenders. While fast funding is what every struggling company craves, unsecured financing is usually fraught with numerous pitfalls that go unconsidered until it’s too late. Read on to find out what you need to know before getting credit cards for small business expenses.
What Good Are Credit Cards for Small Business When You Can Just Get a Traditional Loan?
Many small business owners question the value of credit card financing in lieu of traditional bank loans. The reason for that is obvious: both have their own advantages and disadvantages. Using credit cards for small business expenses, however, tends to be a very popular option. In fact, at least 31% of all small businesses in operation today use or have used some form of credit card financing.
Choosing whether to use a traditional bank loan or unsecured credit cards depends on numerous factors, including how you plan to use the money, what condition your credit score is in, and the strength of your corporate financial portfolio. Below are the most common factors that small businesses need to consider before applying for unsecured credit cards:
1. LOAN TERMS
Credit cards for small business expenses give you a revolving line of unsecured credit card financing, which means you can borrow and repay from the card as often as needed while making only minimum monthly payments. On the contrary, small business bank loans give you one lump sum of cash upfront and require you to pay it all back at a fixed interest rate before borrowing any more money.
2. INTEREST RATES
Although traditional bank loans usually offer lower interest rates than unsecured credit cards, they require a lot of collateral to qualify. Alternatively, credit cards for small business expenses require slightly higher interest rates but don’t need you to put up your corporate assets to qualify.
3. QUALIFICATIONS
Bank loans usually need applicants to have near perfect credit, strong finances, and a long-standing credit history to qualify. However, small businesses can gain fast funding through unsecured credit cards because most card issuers require only decent credit scores to qualify.
4. PURPOSE
Traditional loans are useful for small businesses that are looking to refinance existing debt, buy real estate and/or equipment, or make large purchases. On the other hand, the right credit cards for small business expenses can do the same thing. Plus, credit card financing is better suited to cover ongoing costs and serve as working capital, with more flexibility and adjustable spending limits.
5. PERKS
Credit card financing offers incentives that most traditional bank loans do not. For example, the best credit cards for small business give cash-back rewards, introductory APRs, sign-up bonuses, and the ability to build corporate credit. The most you’ll get out of a conventional bank loan is a discount on other services offered by the lender and/or a positive mark on your credit report when you pay the loan off.
Depending on your needs and how you plan to spend the money you get, using credit card financing is typically the most convenient option of the two. The trick is to qualify for as much funding as possible, but what does that take? As it turns out, getting approved for fast funding may be easier than you think.
How Do You Qualify for a Credit Card for Small Business Expenses?
Getting approved for a small business loan is likely harder than getting approved for unsecured credit cards. Interestingly, only about 24% of all small businesses that applied for a traditional bank loan got the okay, while more than 57% saw approvals on their applications when they went with credit cards for small business.
Having a strong Paydex score is obviously a determining factor, but it seems as though unsecured credit cards have lower expectations for their applicants. Furthermore, when small businesses apply with the right lenders their chances of gaining a substantial line of credit are improved tremendously. Therefore, qualifying for fast funding is somewhat complicated yet far less difficult than some might assume.
Traditional bank loans usually need collateral in the form of property or a down payment, while most credit card financing options do not. Moreover, credit cards for small business require a lot less documentation than the former – no income tax returns, no detailed business plans, no profit/loss statements of any kind. In fact, there are numerous lenders who need little more than a statement of your income to qualify you for substantial funding.
The Top 3 Credit Cards for Small Business
As a small business owner, using the right unsecured credit cards is a great way to keep your business expenses separate from your personal expenses while also earning miles, points, and cash-back rewards. The top 3 most beneficial credit cards for small business are as follows:
1. CAPITAL ONE SPARK CLASSIC FOR BUSINESS
This convenient credit card financing option requires only fair credit to get approved, plus it offers 1% cash back on every purchase. There is no annual fee and cardholders can easily build corporate credit with responsible use. It also has zero foreign transaction fees and features a comprehensive fraud coverage plan if the card is ever lost or stolen. As one of the best credit cards for small business, the issuer provides year-end summaries, free employee cards, and experienced customer support as well.
2. CHASE INK BUSINESS CASH
With this fast funding option, users enjoy a 0% APR for the first twelve months plus 2% cash back on all purchases. There is no annual fee here either, and cardholders get a $500 bonus when they spend $3,000 or more in the first three months. Employee cards are free and even businesses with less than perfect credit qualify.
3. BANK OF AMERICA BUSINESS ADVANTAGE CASH REWARDS MASTERCARD
As one of the easiest to use unsecured credit cards available, this bad boy charges no annual fee, offers 3% cash back on purchases at gas stations and office supply stores, plus gives a generous 2% cashback at restaurants and 1% on all other purchases (up to $250,000 per calendar year). The introductory APR is set at 0% for the first 9 months and is only about 22.9% after that (depending on your credit score).
Obviously, using credit cards for small business expenses is the smartest and most convenient fast funding option. However, it’s important that you seek help from a financial services company who can put you in contact with the most favorable lenders.
This article was written for Grand Teton Professionals for Fast Unsecured. For Credit Repair Solutions and Support, please contact us at 203-518-4923 or email us at Support@FastUnsecured.com. For Media Relations, please contact Misty.Burrell@GrandTetonProfessionals.com