A small business credit card can be a smart starting point for businesses and entrepreneurs to establish a financial identity. Learn how your small business can get the most out of credit cards on this episode of “The Heartbeat of Main Street.”
“The Heartbeat of Main Street” delivers timely insights tailored to the needs of small business owners and entrepreneurs. Featuring a rotating line-up of small business experts and industry leaders – and covering a range of topics – each episode explores the trends that have an impact on revenue creation for small business owners.
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Gregg Stebben: Welcome to “The Heartbeat of Main Street” with ForbesBooks and Bank of America. Today, we're going to talk about small business credit cards. Are there benefits to having a credit card for your small business that you don't know? We're joined by Rieva Lesonsky. She's one of the influencers at Bank of America's Online Small Business Community at bankofamerica.com/sbc, and she's also President and Founder of GrowBiz Media and smallbizdaily.com. Also, with us is Kevin Condon. He's the Head of Consumer Deposits and Small Business Products at Bank of America. Thank you both for joining us.
This is really such a fascinating topic, because we all know about personal credit cards. We all have them, but I'm not sure small business owners always stop and appreciate what additional value a credit card for their small business can have for them. So, let's start with this Rieva. If I'm a small business owner, why should I get a small business credit card? And I guess that's really two questions. First, what will a small business credit card let me do that a personal card won't, and how is a small business credit card different from my personal credit cards?
Rieva Lesonsky: That's such a great question, Gregg. The basic bottom line of this is, you need to lead two separate financial lives as a business owner. You have to have your business life and your personal life. So, a small business credit card is going to act as the separation between that. It's going to help you establish your business identity. It's going to help you build business credit history. If you ever want to get a loan in the future, you need to have a business credit history, not a personal credit history.
A credit card, a business credit card, is going to help you do that. It's going to help you keep track of your business expenses, so you know what you can write off at tax time. And it's going to give you access to money when you need it, kind of like a business line of credit, but it's easier to get. And I think that thing that people don't understand the difference says, “I'll just use a personal card and use it as a business,” but business credit cards come, often, with higher credit limits.
That's, like I said, a line of credit, so you can spend more money. They help you build that credit history, like I said. And, if you have employees, they help you keep control on employee spending. You can give your employees cards, look for an issuer that gives you employee cards for free, and you can set limits on those employee cards. So, any travels, they may have a higher limit than an employee with a card who's just there to buy the office expenses.
Gregg Stebben: And it also lets you see, in almost real time, exactly what they're spending money on. So, if there's a problem, you can stop it much faster. Those are really great points. Rieva, thank you.
Kevin, you and I have talked about this before on the show, but I want to come back to it. I remember you telling us that, a great way to build credit and trust with the bank, if you ever want to take out a loan, is to start with a small business credit card, correct?
Kevin Condon: That's right, Gregg. In banking, we refer to the five C's of credit frequently when we discuss credit with our clients. Those five C's are capacity, collateral, capital, conditions and character. A business credit card is a great way for you to establish that last factor of character. Now, when I'm talking about character, I'm really referring to your personal integrity, your industry experience, and your credit history. Yours, and the people closely tied to the success of your business, so the people on your teams, your partners, and so forth. A business credit card is a great way to demonstrate your trustworthiness, and your credit worthiness in the future to a bank while earning rewards on your purchases that are relevant to your business.
Using that card to make sensible purchases, and paying off your balance in full, and on time every month shows us at the bank, that you have a track record of fiscal responsibility and you're a strong candidate for larger scale lending, such as a business line of credit in the future.
Gregg Stebben: All of that's really perfect, and one of the things you mentioned, rewards. I just want to highlight that, you and I actually did an interview, and folks can hear it at forbesbooks.com/bankofamerica. We actually did an interview, specifically, about how to take advantage of the rewards tied to a small business credit card. Folks may want to go back and listen to that again, because there was some really good information there. Back to you, Rieva. I want to ask you about the kinds of things I should think about, or consider, when I'm looking for a credit card for my small business. What's important? What should I be considering here?
Rieva Lesonsky: Well, the first thing you should look at is, does it make you pay a fee or not? Sometimes the fees are worth it, because you may get extra benefits. But there's a lot of business credit cards out there that you don't need to pay an annual fee on, and that really helps because you know you're saving money. Then you want to make sure that you match any rewards that you're getting with what you do. If you don't travel, if you maybe take two business trips a year, then don't get a travel rewards card. There's other cards out there that will give you some kind of reward, or bonus, based on what you do you.
So, think about what you need. Do you need flexible payment options? Do you need travel protections, discounts, a cashback card? You want to make sure that there are tools to help you keep track of the expenses. Then, maybe, look for card with as low and APR as you can get. I know APRs are a little higher these days, but still look for a card that is giving you the lowest interest rates that you can get right now.
Gregg Stebben: And you mentioned fees right up front, but, again, once you've evaluated what the rewards are, and how they're going to benefit you,that is the right time to then consider whether the fee actually makes sense for you. Are the rewards, or the benefits, so much greater than the fee, that it makes sense, or should you move onto a card that doesn't have a fee?
Kevin, I want to ask you a question that assumes, now, we've listened to this much of this podcast. We've gone out. We've applied for our business, our small business credit card.Now we have it. What are some good practices we should keep in mind to make sure we're getting the most out of it? And, frankly, also making sure that we're staying out of trouble.
Kevin Condon: A great question, Gregg. You know, being a responsible cardholder is really straightforward, if you follow just a few simple tips. First and foremost, make your payments on time every month. We all get busy, and distracted, and we've all forgotten, in our personal lives, about an upcoming payment at some point. But these days, there's plenty of tools at our disposal to make sure that that never happens. I'd recommend arranging automatic online payments from your checking account, or setting up email and text alerts, to remind you when those payments are due, so you won't miss a payment.
Second, be conservative about the purchases you make on your card. Youshould never charge big purchases that you don't think you'll be able to afford to pay off, right now. And try to keep your balances below 10% of that credit line. Sometimes people fall into the trap of making purchases based on future income expectations, and if that income doesn't end up materializing, they can end up in some trouble.
Next, just be practical. Monthly expenses like gas and office supplies for our businesses are great ways to build payment history without overextending yourself. Avoid those impulse purchases and splurges just because something goes on sale. Make sure you're being practical.
Fourth, pay off your credit card in full each month, if you can. Making purchases and consistently paying our cards off, on time, can demonstrate to a bank that you can manage your payments, and keep your credit score healthy, which will allow you access to that line of credit we talked about earlier.
And lastly, don't forget about making sure you're capitalizing on any rewards you may be eligible for. Gregg, like we talked last time, make sure you're layering those rewards. Making your purchases where there are loyalty rewards programs at specific merchants, taking advantage of those credit card rewards, and then any other rewards programs your bank may offer, so you don't leave money on the table.
Gregg Stebben: You know what I really like about this is that, from what you're both describing here, a credit card for your small business, it really has benefits today - those sort of logistical benefits, that Rieva talked about. It can help you manage expenses, see where you're spending, see and control how employees are spending money -but there's almost a network effect here, as you described Kevin, because this can do all kinds of things for the future of your business. It can really help you build your credit, build a relationship with a bank, and do all kinds of other things, including maximizing the value of those rewards.
I really want to thank you both for joining us. I've been talking with Rieva Lesonsky. She's one of the influencers at Bank of America's online Small Business Community at bankofamerica.com/sbc. She's also president and founder at growbizmedia and smallbizdaily.com. Grow Biz Media is at growbizmedia.com, as well. Kevin, Kevin Condon is the head of Consumer Deposits and Small Business Product for Bank of America. And for more great small business tips, check out Bank of America's online Small Business Community where you can see things from Rieva, and lots of other influencers like her. It's at bankofamerica.com/sbc. Thank you both for joining us.
Rieva Lesonsky: Thank you.
Kevin Condon: Thank you.