Business credit cards open world
of convenience, perks to entrepreneurs
By Jay MacDonald • Bankrate.com

If you're about to launch a small business and need a business credit card, you're in luck: the range of choices among annual percentage rates, perks and services has never been better.

But before you sign up, make sure the card does what you need it to do in order to help your business run smoothly. Does it provide an APR you can live with? Will it be accepted everywhere your sales force travels? Will it earn points or discounts on those goods and services your business uses most? Can you set different spending limits on your employees' cards? Are the activity reports frequent and complete?

Don't know? Sit down -- It's time for Business Card Basics.

The dawn of small-biz cards
First, a short history lesson. Since roughly the dawn of plastic, credit card issuers, particularly banks, had little interest in dealing business credit cards to small businesses. The reason was obvious: statistically, 90 percent of them are going to fail.

Beginning in the mid-1990s, that began to change, according to Steve Abrams, senior vice president at MasterCard Global Teaming Solutions Group.

"In 1995, bank and nonbank financial institutions started to use consumer prescreen/credit scoring techniques to acquire accounts and started to be very aggressive in going after small-business customers outside of their traditional market area," says Abrams. "You also had a couple of good things happening -- the economy was getting better and the profitability of small businesses was increasing."

Suddenly, small business, the fastest-growing segment of the economy, became attractive to major credit card issuers, who in turn scrambled to design cards to appeal to them. Ah, good times!

The offers that card issuers are bundling are growing in number and in variety.

Fancy a round of golf at St. Andrews, Scotland, the "home of golf"? Take a client, whip out your MasterCard BusinessCard and through its savings program, take 20 percent off your car rental.

Oops. You say you forgot your golf clubs in the trunk when you returned the rental? Ship them back to yourself, using your American Express Corporate Card. FedEx International Priority shipments are 20 percent off.

Need to watch your pennies after that trip to Scotland? U.S. Bancorp and Staples just teamed up to create a co-branded credit card that offers discounts on office supplies.

Expect more such offerings in the coming months: More than 90 percent of U.S. banks intend to offer new products for small businesses in the next 18 months, according to a survey released in February by the Consumer Bankers Association.

For one, despite the recent boom in products offered, cards issued in the company name are still tougher to get than regular credit cards issued in the individual's name. Typically, banks extensively review credit applications from small-business owners and may impose minimum net worth requirements or demand tax returns for the past two years.

For some sole proprietors, simply obtaining and using a second consumer card exclusively for business purchases may do nicely. But if you travel frequently, plan to issue cards to your employees or just want to stay on top of your spending, your best bet may be a business credit card.

"A lot of business owners are still putting business expenses on personal cards, and that's a big mistake," says Jane Applegate, author of 201 Great Ideas for Your Small Business. "It runs into problems at tax time and causes confusion. You really do want to keep your personal money separate from your business money."

Finding the right business card
When shopping for a business credit card, features to consider include:

• Acceptance: If you or your employees travel, acceptance may be an important qualifier when choosing a card. The most widely accepted cards are MasterCard (17 million locations) and Visa (16.2 million), followed by American Express (undisclosed) and Discover (3 million, U.S. only).
• Cash access/spending limits: Do you want some of your employees to be able to obtain cash with their card? Do you want to be able to set separate spending limits on each card? Look for a program that offers these features.
• Discounts: Every major bank card offers copious discounts with partners. Even the most basic small-business cards tend to bundle deals from air freight shippers, copy/printing services and computer hardware/software providers. Find the mix that serves your needs.
• Bonus points: For every dollar charged to your card, you receive points, either toward a variety of goods and services from airline tickets to hotel accommodations to new cars, or as cash back at year's end. Again, the key is a program that builds toward rewards you and your business can use. If the airline frequent flier miles appeal to you, look for a program that is redeemable at any airline with no blackout dates.
• Credit/debit cards: For some businesses, a card that includes a debit function is a great way to tighten the belt when necessary, as well as cut down on check writing.
• ATM network: If you travel a lot, you'll want to look for a national ATM network, such as Cirrus, Honor or Plus, for ready cash after hours and in airports.
• Revolving credit: Important if you expect to carry a balance on your business card from month to month. Conversely, if you plan to never carry a balance, you may obtain more features by forgoing a low APR.
• Insurance: Some cards offer travel insurance, purchase insurance, additional rental car insurance and lost card insurance.
• Value Added Tax reclaim: If you travel outside the country frequently, this can be an easy way to reclaim this foreign tax.
• Management reports: Does the card issue a quarterly report, or can you receive account information more frequently? Does it break out spending by employee? Does it offer an option to customize the reports you receive? Is it available online and downloadable to your accounting program?
• Internet discounts: Major card companies are establishing online portals to bargains with partner companies, ranging from office supplies to accounting services. Want to earn bonus points when you hire a temp? It can happen.
• APR and annual fees: If you plan to use your card for cash flow, the APR and annual fees are important considerations. No need to wander off, though. You're at the best site on the Internet to find the lowest APR and annual fee. The Bankrate.com business credit card search engine has just been updated.

Getting what you want
The Internet is a great place for individual consumers to shop for bargains, but today a small business owner might get a better deal the old-fashioned way -- by walking into a bank branch, asking to meet the manager and striking a bargain.

By talking directly to the local banker, you may be able to get a better APR, smaller fees and more benefits. If you're offering to join into a long-term relationship, the banker may respond with a bundle of services, including a favorable deal on a business credit card.

Financial consultant Kathy McShane of the Kendrew Group advocates the opposite tack: Finding a local issuer with the right set of features at rates you can live with isn't easy, she says, so deal directly with national issuers who are better prepared to offer deals to small businesses.

The time is right for small-business owners to push card issuers for the combination of features that they want, she says. The way to do that is to start with a provider who deals heavily in the small-business market, offers credit in the company name and makes the approval process simple. The card you want will probably involve a fee. Pay it, she says, and be sure to deduct the fee as a business expense on your taxes.

"When a company goes in and wants to open a DBA account and a line of credit, what we strongly recommend at that point is to have the business owner say, 'Look, you're giving me X number of dollars in a line of credit, apply X percent of that to a business card for me,'" says McShane. "Because the institution has already gone through the credit approval process, at that point they can approve them for a business credit card. It's sort of one-stop shopping."

"It's a waste of time for a company to apply to a lot of sources," she says. "They really should apply to somebody who is offering business cards on a large-scale basis."

Don't fly into an airline program
Oh, and about those enticing airline programs? McShane says to forget them. "If you don't travel a lot, or you do day travel, to pay (a fee of) $75 a pop for something you're probably never going to use doesn't make sense."

Instead, she urges her clients to negotiate with the issuer to put those bonus points toward something more germane to the business, such as an Individual Retirement Account or Keogh Account.

"That's going to win the heart and soul of a small-business owner and, frankly, they're not going to switch if they're earning points toward something that's difficult for them to do," she says. "What small businesses are looking for are financial relationships. We tell issuers to develop programs that give small businesses the clout of the big business. It's just a matter of developing really good cross-sell strategies."

Jay MacDonald is a contributing editor based in Florida
To comment on this story, please e-mail the Bankrate.com editors

-- Posted: March 9, 2000