Small business credit cards are an asset to your business if you know how to use them correctly. There are times, however, when small business owners misuse their business credit cards, which do them more harm than good. We spoke with the industry experts who identified several small business credit card mistakes to avoid.
Below are the top 25 small business credit card mistakes small business owners should avoid.
1. Not Understanding the Benefits Available to Them
Ginger Siegel, North America Small Business Lead, Mastercard
One of the biggest mistakes small business owners make with their business credit cards is not taking the time to understand the full breadth of benefits available to them. Some credit card issuers like Mastercard offer packages including several popular and turnkey small business cardholder benefits to help make these businesses more productive and profitable. These benefits include ID theft expense reimbursement insurance, cell phone protection plan, and more.
2. Using Personal Credit Cards for Business Expenses Without Proper Recordkeeping
Joel Ohman, Certified Financial Planner & Founder, Auto Insurance
It seems like every small business owner has used a personal credit card for business expenses at one time or another. However, sometimes it’s unavoidable, but good record keeping is essential, because the last thing you want to do is pay for the legitimate business expense out of your personal funds, never reimburse yourself, and then forget all about it.
3. Carrying a Balance on Your Small Business Credit Card
Will Luckert, Vice President of Business Analysis, Capital One Small Business Card
Using credit cards to stay afloat oftentimes means you have to pay interest – which is typically a higher rate than a standard line of credit. Also, it negates any of the benefits of credit card rewards. The savviest small business owners pay off their cards every month to avoid paying interest, and they earn rewards on every purchase.
4. Not Offering Credit Card Payment Options to Customers
Derrick Carpenter, Executive Vice President – Integrated Payments, Digital Commerce & Marketing, Bank of America Merchant Services
Small businesses that aren’t keeping up with customers’ changing preferences and habits, particularly regarding how they want to pay for goods and services, risk losing sales. In our most recent Small Business Payments Spotlight, we found 32% of consumers surveyed never make purchases at businesses that do not accept credit and debit cards. In addition, 18% of consumers polled said they would walk away from a transaction if they found that a business did not accept the brand of credit card they wanted to use. To protect and grow their customer base, it’s more important than ever for small businesses to be able to securely process a variety of payment types, including credit and debit cards and digital payments.
5. Being Unaware of the Changes in Your Credit Card’s APR
Jacob Lunduski, Financial Industry Analyst, Credit Card Insider
One of the biggest business credit card mistakes is being unaware of the changes in your credit card’s interest rate. Make sure to stay on top of any interest rate changes when using a small business credit card. For example, a business credit card can have a 0% APR for up to nine months, then change drastically back to a regular APR. Always stay informed and know when any changes to your card take place.
6. Not Monitoring Employee Card Usage
Yuko Kawamoto, Finance Staff, Founder’s Guide
Giving out corporate credit cards to your employees is a convenient way for them to pay for business-related expenses. However, as a small business owner, it is important that you keep an eye out on what they charge to their employee credit cards and ensure these are authorized expenses. Not closely monitoring their usage may lead to employees abusing their corporate credit cards.
7. Avoiding Cards With Annual Fees
Benny Ganatra, CEO, Americor
Don’t disqualify cards that require an annual fee. Cards with fees may have the best perks like high reward rates, sign up bonuses, and longer grace periods. Layout your credit management strategy and ask yourself how will the card fit in with your business lifestyle. Make sure to research which business credit card is the best option for your unique business preference.
8. Spending Beyond Your Means
Lou Haverty, Chartered Financial Analyst, Financial Analyst Insider
Be aware of your own business’s financial situation before you swipe your credit card to pay for your expenses. You should only be using your credit card within your business’s financial means. Your business should have a stable cash flow to be able to settle your credit card bills in full every month.
9. Having Too Many Credit Cards
Deborah Sweeney, CEO, MyCorporation.com
One small business credit card mistake entrepreneurs can make is having too many business credit cards. This can create confusion especially with tracking your spending, payables, and due dates. It’s best to stick only to the cards you know you need for your business rather than overextend yourself to have several cards with various balances and interest rates.
10. Using Your Credit Cards for Expensive Purchases You Can’t Afford
Paola Garcia, Small Business Advisor, Excelsior Growth Fund
While small business credit cards are often easy to access, they are a short-term financing source and should be used as such, only for short-term needs (financing the growth of accounts receivables and/or inventory). Credit cards should not be used as a loan, to purchase expensive and large equipment or to finance fixed assets. No matter how high your credit card limit is, big purchases will eat up a great portion of it, increasing your credit utilization ratio. This ratio is the percentage of the total credit being used. By making large purchases with a credit card, you risk not being able to quickly pay off your entire balance, negatively impacting your credit utilization ratio and your overall credit score.
11. Using a Debit Card Instead of a Credit Card
Gerri Detweiler, Education Director, Nav
Business owners who want to avoid debt may get a business debit card thinking it’s the more responsible choice. But debit cards offer fewer protections. A business credit card offers full protection in the case of billing disputes and fraudulent use. And using a business credit card will help build your business credit, too
12. Choosing Business Credit Cards That Don’t Maximize Their Rewards
Jacob Dayan, CEO & Co-founder, Finance Pal
Some common mistakes many make with a small business credit card is picking a card that has rewards that aren’t applicable or don’t apply often enough to their expenses. Ideally, you want a card where you can reap the benefits and save the most money. It’s best to know which rewards your business would truly benefit from, like travel miles if you often send people to business trips for instance, and find a card that offers that kind of reward.
13. Not Having a Business Credit Card
Julie Pukas, Head of US Bankcard and Merchant Services, TD Bank
A business credit card is a great way to track and evaluate your expenses, and it also offers the opportunity to earn cash back rewards on your unavoidable purchases. However, according to TD Bank’s survey of small business owners, only 46% of them have a business credit card. Not having one means you’re missing out on opportunities to track your spending and earn rewards on business expenses.
14. Forgetting That Most Cards Will Give You Purchase Protection
James Duren, Personal Finance Analyst, HighYa.com
One small business credit card mistake is forgetting that most cards will give you purchase protection on certain items you buy. This protection will cover items that are stolen or accidentally damaged within a certain amount of days of the purchase. This is a big deal if you’re using your card for inventory that ends up being stolen or damaged, for example, by a weather event or an accident. This protection typically has a per-claim cap of, in some cases, $5,000.
15. Not Having a Separate Personal & Business Credit Cards
Brittney Castro, Founder, Financially Wise
Not having separate credit cards for business and personal expenses is one big mistake that every business owner should avoid. It may seem like common sense, but it’s easy to lose track of what needs to be charged to your business credit card and what does not. By separating your personal from business finances, you know all business finances go on one card.
16. Not Paying Your Balance in Full Every Month
Jerry Lang, President, House of Travel
One of the biggest business credit card mistakes is not paying off the full amount and having to pay interest, as any month where you have a balance you pay interest normally around 17% APR – even if you pay it off the next month you still pay interest for that money. Be careful because some credit card companies tend to keep raising your limits until you reach a point where you miss a full payment.
17. Not Choosing Credit Cards That Earn Rewards
Jocelyn Baird, Consumer Advocacy Source, NextAdvisor.com
Not choosing a business credit card that earns rewards is a common mistake business owners make. Running a business means you’re going to be spending a lot of money and using a credit card that earns rewards for business-related purchases means you’re getting something back for all your spending. Choose a credit card that earns rewards relevant to your business activity.
18. Making Late Payments
Steve Pritchard, Business Consultant, GiffGaff
Don’t wait to make a repayment on your business credit card. Aside from having to pay a late payment penalty, this can also lower your credit score. Credit reports typically indicate late payments in increments of 30 days, so if you have an overdue payment, it will be counted as 30 days overdue, even if it is less than this length of time.
19. Maxing Out Your Credit Card Limit
Tom Malesic, President, EZ Solution
One of the biggest problems most small business owners struggle with is money management. This is the reason why they often commit the common mistake of maxing out their credit card limits. In fact, some business owners bring around 3 or 4 credit cards with them all the time because they are not sure which one is not over the limit. Ensure to manage your business finances properly and use your credit card only when you can pay the balance in full every month.
20. Not Looking for a Low APR Credit Card
Daniel Wesley, Founder, Credit Loan
A credit card with a low annual percentage rate (APR) is a good option to use for large purchases. You will be able to save on costs if you’re forced to pay it off in monthly installments, and at the same time, enjoy its perks and rewards. When applying for a business credit card, make sure to choose the one where you can save the most.
21. Thinking Your Personal Credit Doesn’t Affect Your Business Credit
Shaun Moise, President, Scope Environmental Remediation
Some business owners who are new to using small business credit cards don’t know that their personal credit is a factor when it comes to qualifying for business credit cards. The higher your personal credit score is the higher credit limit and lower rates you can obtain for your business. Make sure to be responsible for paying your personal credit cards on time.
22. Not Using Credit Cards Whenever Possible
Airto Zamorano, Founder & CEO, Numana SEO
Using credit cards whenever possible has many benefits. You can accumulate points and rewards that hold monetary value, better maintain your cash flow, and build your credit. Another benefit often overlooked is security. If you’re the victim of identity theft or any other mishap, credit cards protect your bank accounts while also providing an added level of support in cases of fraud or disputes.
Another business credit card mistake that most busy business owners make is failing to review billing statements thoroughly. Score emphasizes how important it is to review your billing statements prior to making payments, no matter how tedious this task may be. Reviewing your statement properly allows you to ensure that there are no fraudulent or unauthorized transactions in your account. It can also help you monitor your business’s spending habits.
According to Summit FR, while it can be tempting to close your business credit card after you’ve paid off your high-interest balance, it can negatively affect your credit score. Closing your account will lower your overall credit limit, which can increase your credit utilization ratio. Try to keep your old credit card accounts open and avoid using them, especially if they have high interest rates.
Cash back, points, and travel perks are few of the rewards you can get from using your business credit cards. However, if you forget to use these rewards, then you are missing out big out on your credit card benefits. According to Fora Financial, one of the most common small business credit card mistakes every business owner should avoid is not using their rewards to their business’s advantage and letting them expire. Make sure to take advantage of these rewards while they are still available for redemption.
The Bottom Line
Small business credit cards are a good solution for businesses with short-term financial needs. Credit cards can offer a lot of rewards and benefits to your business as long as you use them correctly. However, when used incorrectly, credit cards can cause you trouble. Use the above list of small business credit card mistakes to avoid to ensure you use business credit cards to your advantage.