ABS statistics show that in 2013-2014, 93% of businesses in Australia applied for some form of credit (‘debt finance’), including business credit cards, and 84% of applications were granted.
Pros of business credit cards
Businesses can use a credit card for making business transactions and paying it off every month, or for a short-term cash flow option instead of applying for a business loan.
Business credit cards make it easy to separate your business transactions from your personal transactions, which cuts a lot of stress out of filling in a BAS at tax time.
There are many different features that may be attached to a business credit card. These can include:
- Personal, joint, or several liability for transactions
- Individual credit limits for each card, and an overall credit limit for the business credit account
- Monthly itemised statements for each card’s activity, and for the business credit account position overall
- Rewards programs
- Online functionality
- Varying interest rates
- Interest-free days
- Annual or monthly account-keeping fee
Cons of business credit cards
According to the CANSTAR database in October 2015, interest rates for business credit card purchases are between 11.99% and 20.74, with an average rate on a standard business credit card of 17.51% and average on a low-rate card of 13.13%. This is slightly higher than the rates for personal credit cards – so it’s a serious choice. Business owners should be careful to pay off their account every month and look for a high number of interest-free days.
Just like with other credit cards, interest rates are higher for unsecured credit and lower for secured credit. Business credit cards can be secured by a commercial interest in the business itself, or by residential property, which is a riskier option for small business owners.
Business vs. personal credit cards
Do you need two cards? This is a complicated question and really depends on how big your business is and how complicated your tax affairs are. We recommend you ask yourself the following questions to work out whether you need a business credit card.
What will you use the card for?
What will you be using the card for? Mostly business transactions or mostly personal transactions?
How complicated is your business tax?
How complicated do you find doing your tax and your BAS (business activity statement) at the end of each financial year? If you’re finding it a chore to wade through your personal credit card statements to find your business deductions each year, having a separate business account just makes sense. On the other hand, if you’re a sole trader and you know you wouldn’t use the card much, there is no sense paying an annual fee for the privilege.
How many people in your business need to access business funds?
Many business credit cards allow business owners to issue multiple cards to their employees, and set monthly caps for spending by each cardholder. This can certainly be helpful for the 39% of businesses in Australia that employ one or more staff members apart from the owner. If you’re a sole trader, a business credit card really may not make your life any easier. It’s just more plastic weighing your wallet down.
Would your business use rewards?
A separate rewards credit card for your business could make sense if you spend enough to earn the rewards, and the rewards of a type that seriously benefit your business. For example, if you could earn enough frequent flyer points to pay for a business flight or two in the year, or employee Christmas bonus gift cards, it might be worth it.
Does your card work for your business?
No matter how you use a business credit card, the rates and features available on the market are continually changing, so it pays to shop around once a year. Here at CANSTAR, we make that easier for you by comparing business credit cards on our website.
We rate business credit cards for two categories of business credit card user: Revolvers who keep a balance on the card and pay interest on it, and Transactors who pay off their card in full every month. Revolvers should filter our comparison tables for a low interest rate and the maximum number of interest-free days. Transactors should search for the maximum number of interest-free days and can add in a rewards program if it would outweigh the cost of the annual fee.
For more information about how we research and rate business credit cards, read our latest Business Credit Card Star Ratings Report.
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