Choosing a Business Credit Card

Most major financial institutions who offer personal credit cards offer business credit cards as well. When selecting a business credit card, it is important to consider the following:

• Fees : While some credit cards have no annual fee whatsoever, others come with an annual fee of up to $100. This fee should be carefully considered when choosing a credit card, since it is a major component of the total financing fees that a company will ultimately pay.
• Interest Rates : Many credit cards today have a range of interest rates that are charged. Some offer an initial low "teaser rate" for a certain amount of time, an adjusted rate for monthly unpaid balances, a significantly higher rate for cash advances, and a usually much lower rate for balances transferred from other lines of credit. If a company plans to pay off the balance each month and use the credit card for convenience only, these interest rates are less important that if a long-term payoff is planned for a major purchase, or if the line of credit will be used for cash advances.
• Line of Credit : If you plan to use your business credit card more for a source of operating capital, you should take this into consideration when applying for a line of credit. Since there is no such thing as a "standard" line of credit, your company's business credit profile will be the determining factor in the amount of credit you are offered.
• Grace Period : The grace period on a business credit card is the window of time when the financial institution will not charge any interest as long as the balance is paid in full within that time. Typically, the grace period on a business credit card is anywhere from 20-30 days.
• Other Perks : Many business credit card companies offer additional rewards to try to entice a borrower into choosing their product. Cash back incentives (1-3% for every dollar charged), frequent flyer miles on a variety of airlines, free gasoline (3-5% for every purchase of gasoline you make), and other product-related incentives are offered each time you use your credit card. However, in some cases, there may be a fee for these types of reward programs, so make sure you understand the terms of the program before agreeing to participate.

The best way to stay on top of your business credit is to be informed. It is crucial that you read all of the small print in the initial application, as well as any additional information that is mailed to you from the credit card company. Remember, that an advertisement for a business credit card with no annual fee may only be available to certain customers who meet the designated criteria.

There are several excellent resources on the Internet to compare business credit card options including:

• CreditCards.com : (www.creditcards.com/business.php)
• CardRatings.com : (www.caradratings.com)
• LowCards.com : ((www.lowcards.com/businesscards.asp)
• MoneySearch.com : (www.moneysearch.com/creditcards/businesscreditcards.html)

Secure vs. Unsecured Business Credit Cards

Ideally, it is best to obtain an unsecured business credit card whenever possible. However, if your company does not have any business credit, or if you have a poor credit history for one reason or another, you may want to consider applying for a secured credit card in order to establish or rebuild your credit profile.

With a secured credit card, the borrower deposits a certain amount of money into an account with the financial institution issuing the card, and this account is used as collateral for the credit card. Typically, 100% of the money deposited is reflected in the line of credit. For example, if a company deposited $15,000 into a collateral account, it will be issued a business credit card with a $15,000 limit.

A secured business credit card from Wells Fargo Business can provide a credit limit up to $50,000, as long as that dollar amount is maintained in a collateral deposit account. While you will earn interest on the funds deposited in the collateral account, this interest is significantly lower (2.5% for the first year) than the interest charged on purchases made with the credit card (prime plus 9.9% APR for purchases and prime plus 12% APR for cash advances).

Secured credit cards are an excellent way to establish a solid business credit history, but only if you can afford to front the funds required to establish the credit card in the first place. The high cost of borrowing combined with the lack of access to significant assets make secured credit cards a better short-term solution. After approximately one year, it is best to try to convert your secured credit cards into unsecured cards by applying for an unsecured credit card with the financial institution who issued your secured card.