The Island Approach: Which Are the Best Credit Cards for Small Business?

island approach

Major credit card issuers took small steps to improve their business credit card policies during 2013, ramping up their transparency and extending minor CARD Act protections to business-branded products. But Bank of America is still the only one that has forsworn arbitrary interest rate increases on existing balances. That means the 37% of small business owners who use credit cards for financing purposes each year will need to get a bit creative if they want to attain debt stability as well as the best combination of product terms possible.

You basically have two options. First of all, you could use a card like the Bank of America Cash Rewards for Business MasterCard, which offers 0% interest for 9 months in addition to 3% cash back on purchases made at office supply stores and gas stations, 2% cash back at restaurants and 1% on everything else. Alternatively, you could implement the Island Approach.

Credit Cards for Small Business: The Island Approach

The Island Approach to credit card use is a strategy that entails using separate accounts for different types of transactions and needs. In general, this might involve a small business owner using a base rewards card for everyday spending, a 0% general-consumer credit card for financing stability, and perhaps a card offering an attractive initial bonus in order to cushion your coffers.

More specifically and with currently available offers in mind, the Island Approach could look something like this:

Financing Big-Ticket Purchases

Citi Diamond Rewards Card: This card offers 0% on purchases as well as balance transfers for 18 months and does not charge an annual fee. It does, however, have a 3% balance transfer fee, so it’s best used to finance upcoming big-ticket purchases.

Lowering the Cost of Existing Debt

Slate Card from Chase: A free balance transfer credit card, Slate offers 0% interest on transferred debt for the first 15 months and does not charge either an annual fee or a balance transfer fee. For the average consumer with about $6,500 in credit card debt, transferring that balance to the Slate Card from a card with a 17% interest rate and paying it down within 24 months would be worth more than $1,000 in avoided finance charges.

Earning Everyday Rewards

Capital One Spark Cash for Business: This card offers a full 2% cash back on all purchases, with no rotating spending categories, earnings limits, or other caveats. You also stand to get a $100 initial rewards bonus for spending at least $1,000 during the first three months and another $50 for signing up an employee as an authorized user. There is no annual fee during the first year ($59 beginning in year two).

Supplemental Rewards Bonuses

Ink Plus Business Card: The 50,000 bonus points you’ll get from Chase for spending at least $5,000 during the first three months are redeemable for a $500 statement credit or $625 in travel booked through the Ultimate Rewards program. The Ink Plus Card also offers 5 points per dollar on up to $50,000 in annual office supply and telecom purchases as well as 2 points per dollar on $50,000 in annual gas and hotel expenses. There is no annual fee during the first year ($95 thereafter).

Club Carlson Business Rewards Card: This card offers up to 85,000 bonus points – 50,000 after your first purchase and 35,000 for charging $2,500 during the first 90 days. Those points are redeemable for up to 18 free nights at hotel chains like Radisson and Country Inn & Suites.

While any small business would benefit from 0% rates and hundreds of dollars in rewards bounties, the best offers are only available to people with above-average personal credit standing. Creditors consider small businesses to be extensions of their owners and evaluate the personal finances of small business credit card applicants as a result.

Should you therefore need to do a bit of credit building prior to revamping your suite of small business spending tools, get a credit card with no annual fee. It will report information to the major credit bureaus on a monthly basis and won’t cause you to waste money on service charges as you climb back to good credit.

Like paying down debt or laying out a budget, credit building is one of those things that isn’t terribly easy or exciting. But it’s important, and if you take care of it now, you, your wallet and your company will all be happy later.

Credit Card Photo via Shutterstock

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Odysseas Papadimitriou Odysseas Papadimitriou is a personal finance expert whose views are regularly mentioned in many major publications. He is the founder and CEO of Card Hub, a leading U.S. credit card and gift card portal, as well as Wallet Hub, the first personal finance social network.

6 Reactions
  1. If you are paying off all cards each month (so no interest) another approach is to get a bunch of credit cards (say 4 to 6) that have different closing dates in the month. Then begin using each card exclusively on the first day after the closing date in the new month until the next card’s first day. That way you create your own interest-free revolving credit line with between 50 and 60 days before you have to pay out the cash to clean up each card. Just be sure to avoid letting credit usage get out of hand. Also, this tends to provide a larger aggregate line of credit then you’ll get with a fewer number of cards. However, too many (e.g. 30) will likely harm your credit standing, not to mention the admin hassle of so many bills to pay.

  2. Oddysseas,

    One thing for sure, implementing the Island Approach needs people to have strong control on the usages – and always be in a close watch on the due dates.

    A relative of mine, an entrepreneur, owns dozens of credit cards for business purposes to make use of the line of credit and each card’s perks to save money. He has someone to take care of the credit card payments to avoid late fees.

  3. While the Island approach may offer a little diversity and allow you to track expenses better, it will still mean that you will have to pay for each one of those credit cards, yearly or monthly. The more you have, the more it will cost, which means that you will have bigger banking expenses, which is not a good thing.

  4. I think whatever card you go for, it must be picked correctly considering both your personal preference and business needs. But you should be careful and make sure there is no late payment or else some issuers will high interest rates or fees and can even put your credit score in threat.

  5. A friend who is a small business owner, uses her credit cards to get instant bank loans when petty cash is low. But I guess for her, she does not mind paying the hefty transaction fees monthly so that the business can continue running to support many workers.

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