4 Tips for Using Business Credit Cards to Fund Your Startup
Image source: The Motley Fool/Getty Images
Even in the early stages of launching a business, it's good to have a business credit card. You'll be able to keep your business expenses separate from your personal expenses, which makes organizing all your finances much easier.
Business credit cards are also one of the more common ways to fund startups. A Forbes Advisor survey found that 8.4% of entrepreneurs initially funded their businesses using credit cards. If you're planning to finance your startup with a business card, here are a few helpful tips.
1. Get a business credit card with a 0% intro APR
If you know you'll be paying off business expenses over time, the most important feature to look for is a 0% intro APR offer. You'll be able to pay off purchases interest-free for as long as the intro period lasts.
For example, some of the best business credit cards have a 0% intro APR for the first 12 months. That gives you a year to make payments on business expenses.
This is practically a must-have, because otherwise, you'll be paying hefty interest charges. The average credit card interest rate is a whopping 21.59%, according to Federal Reserve data. If you finance $10,000 in startup costs, it would cost you $2,159 per year. A 0% intro APR helps you avoid that, at least during the intro period.
2. Don't take on more debt than necessary
Card issuers often give out generous credit limits on business credit cards. Business owners tend to need more spending power than consumers.
Even if your card has a high limit and a 0% intro APR, be careful about how much you spend. If you can pay for expenses in full, that's better than going into debt. And if you need to take on debt, be selective about it.
The larger your card's balance, the more money you'll have tied up in debt payments. If you're using a card with a 0% intro APR, the APR will go up once the intro period ends. At that point, the card issuer will charge your card's go-to rate on any remaining balance you have.
3. Earn money back on your business expenses with welcome offers and purchase rewards
Another benefit of business credit cards is the opportunity to earn rewards for your spending. Many business cards have welcome offers for new cardholders. For example, a card may offer $750 in bonus cash back if you spend $6,000 in the first three months. If you're going to spend that much money anyway, you might as well turn that spending into a welcome offer.
You can also earn rewards on all your business purchases. Some of the best business rewards cards earn a flat rate of 1.5% or 2% on purchases. If your business spends $100,000 per year, that's $1,500 to $2,000 back. There are also cards that earn 3% or more in bonus categories and 1% everywhere else.
There are cash back and travel rewards cards available for business owners. If you know which type of rewards card you want, here are some of the top options in each category:
4. Make your payments on time and pay as much as you can
It's easy to forget about your credit card payment, especially when you're busy getting your business off the ground. But if you miss a payment, your card issuer can charge you a late fee. If you go too long without making a payment, or if you miss multiple payments, the card issuer could also cancel your card's 0% intro APR.
I recommend setting up automatic payments to ensure your credit card bill always gets paid on time. And while you can keep up on your payments by only paying the minimum, you'll spend more time in debt if you do. Unless you need to keep cash on hand for your business, pay as much as possible toward your balance.
A business credit card can be an excellent short-term financing option. You can't do better than a 0% APR, and that's available with some business credit cards, at least for an introductory period. You can also earn money back on your spending if you get a rewards card for your business. Just be careful about how much you finance, and aim to have your card's balance paid off by the time the 0% APR ends.
Alert: highest cash back card we've seen now has 0% intro APR until 2025
This credit card is not just good – it's so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.
