Particularly
for small businesses, having a separate business/corporate credit card offers the
following advantages:
- Identification and tracking of business expenditure
- Understanding cost reduction possibilities
- Operations optimisation and enhanced efficiencies
- Availability of annual and quarterly statements for tax reporting
- Access to high credit limits suitable for businesses
- Reward programs offering redeemable points for travel and other business purposes.
- Giving employees the benefits of a credit card for business purposes, while keeping track of their expenditures
If you are a small business owner and looking
to achieve the above mentioned business advantages, taking time out to scrutinise
available options to pick the right business credit card and it can help you reap
major dividends.
Here is some helpful
information when considering a credit card for a small business:
If you plan to apply for a new business credit
card, ensure your credit is in good shape. Get your credit report and check your score - this will indicate your current financial
standing. Errors in your credit report, if any, should be reported to the
credit bureau and fixed at the earliest. An error-free credit report improves your
credit score, which in turn helps you get better credit terms and better
rewards, leading to big savings.
Get a
credit card in line with your requirements
Your new credit card should fit your exact
business needs. For instance, if your business is such that it requires
extensive interaction with international clients/companies, or needs frequent
overseas travel, it is best to get a card with the following features:
- No foreign transaction fees
- EMV chip and PIN authorisation system
- Air Miles-based rewards system
If your usage is going to be sparse, it does
not make sense to sign up for a card with a high minimum spend limit.
Several cards come with a host of benefits including insurance and travel-related benefits, but they carry high annual fees. If these benefits are not required, get a different card with zero charges and annual fees.
Record keeping
A primary reason for getting a credit card for
small business is to facilitate record keeping. These cards help you keep your business
and personal expenses separate, simplifying things further, and becoming
particularly helpful during tax times. Many small business credit cards also offer
additional business finance-management tools.
Documents for business credit card application
Different banks
have different criteria, and depending on the type of business organisation,
the documents required may vary. Listed below are some common documents business persons need to submit along with
their business credit card application to banks:
- Proof of identity
- Proof of age
- Proof of residential address
- Proof of income, usually balance sheet and P&L account
- Trade license
- Proof of Business turnover
- MOA in case of multiple owners of the small business
Eligibility
- Small businesses, corporate entities, limited companies, government-run companies, sole proprietorships and partnerships can easily qualify for small business credit cards.
- Business credit card issuing banks require eligible businesses to have a specified turnover, profits and a satisfactory operations track record as per their internal requirements.
- Multiple business cards are available for anyone requiring a separate expense accounts.
Benefits of a business credit card
Higher limit: Business credit cards provide higher credit limits compared to personal credit cards. Therefore, business-related expenses and high-value purchases can be made comfortably without maxing out your card.
Keeping track: Business credit cards help keep better track of business expenditure. Some credit card companies offer itemised bills, enabling business owners understand each business expenditure. These cards also offer the option to have a cap on spending limits so the chances of fraud on the corporate card are decreased.
Versatile: Apart from business operations, corporate credit cards can be used to pay for repair and maintenance, utilities, travel, etc. These cards also allow employers to impose restrictions on cardholders to spend only on particular categories, and allow them to specify the extent of expenditure too.
Better rewards: Credit card companies provide better rates on business credit cards, along with better point systems and good offers. Some credit cards offer reward points (if affiliated with an airline, reward points can be converted to air miles and used to purchase air tickets), cash back, discounts, etc. Employees can redeem their rewards in lieu of gifts, discount vouchers, air miles and more.
Establishing company credit history: By taking a business credit card, you build a business credit card history - something most investors scrutinise before investing, as it clarifies your financial responsibility. Even banks can understand your financial standing by looking at your credit card statements, and they will grant business loans accordingly.
Dual benefits: Employees enjoy cashless transactions, while employers get a detailed spend analysis each month.
Transparency: Monthly credit card statements offer transparency, facilitate easy cost analysis and expenses tracking and help streamline budgets too.
Some banks offering
business credit cards:
- Axis Bank
- Bank of Baroda
- Citibank
- Canara Bank
- HDFC Bank
- Kotak Mahindra
- State Bank of India
Table 1. Following is a comparison of business
credit cards offered by two leading Indian banks*.
bank
and card name
|
Features
|
advantages
|
disadvantages
|
Axis Bank - My Business Credit Card
|
1.Offers a comprehensive suite of privileges, designed specially to enhance business
process efficiency
2. 1st
year annual fee is zero
3. From
the 2nd year onwards, annual fee is Rs. 499
4. Throughout
the year, 20% cashback can be availed on base fare of flight tickets via www.ezeego1.com
|
1. Can
be used to withdraw cash up to 30% of the offered credit limit from over one
million Visa ATMs worldwide
2. Can
be customised by getting the company name or cardholder’s designation
embossed on the card
3. Offers
2.5% surcharge refund on fuel transactions in all petrol pumps across the
country
|
1. Mandatory
joining fee of Rs. 999
|
SBI Platinum Corporate Credit Card
|
1. Accepted
at over 24 million outlets worldwide, including 3,25,000 outlets in India.
2. By
applying monthly, weekly, and even daily limits on the card, usage can be
kept within permitted limits
3. With
the Visa Intellilink spend management tool, the cardholder can monitor and
control his/her organisation’s expenses
4. The tool offers a user-friendly
dashboard and a convenient real-time interface for expense management
|
1. No
joining and annual fees.
2. Complimentary
insurance cover – also covers the company’s corporate card liability against
frauds by employees.
3. Interest-free credit period of 20 to
50 days – subject to previous month’s outstanding balance being cleared.
Applicable on retail purchases only
|
1. High international ATM usage charges
– per transaction charges can be as high as 3% of the withdrawal amount or Rs.
400, whichever is higher
|
*The above
information is indicative and subject to change from time to time.
When applying for
a business credit card:
- Talk to other business owners and find out which credit card companies offer the best services
- Compare your options, then zero in on the type of business credit card best suited to your business needs
- Check if you require supplementary cards in your employees’ names
- Read the credit card offer document carefully before signing
- Avoid business credit cards having a personal guarantee mandate
- Remember that corporate credit cards do not allow add-on card options for family members, they are meant for employees and co-owners only
A business credit card is a good choice for most small businesses, especially those in their formative stages. However, these cards are most viable for businesses that manage debt well. From a long-term perspective, predicting this kind of debt management becomes difficult for new entrepreneurs, especially during the startup stage, when expenses outpace income by a long stretch.
Regardless of whether you are comfortable
taking risks, or are a risk-averse entrepreneur - before zeroing in on a
business credit card, it is advisable to weigh all pros and cons, understand
the implications of the aforementioned factors and only then you can make an
informed decision.
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