Small businesses aren’t always able to qualify for traditional funding options, such as loans from banks, like larger businesses can. One way to circumvent this is to apply for a business credit card. Small business credit cards offer numerous advantages for alternative financing options.
You’ll get rewarded for spending money on business-related purchases, have the opportunity to pay 0% interest, and get the most tax deductions possible.
Here are five ways to get the most out of your business credit card.
1. Streamline Tax Season and Stay Organized
A business credit card can help keep your finances organized by providing expense tracking, quarterly reporting, and access to transaction data on-demand. In addition, many credit card providers give business owners access to annual spending reports at year-end. This report can often be uploaded directly into your accounting software.
Using a business credit card is a great way to simplify your taxes and compare receipts to credit card transactions. This will also help ensure you don’t miss out on any important business expense deductions.
2. Leverage a 0% Promotion
A survey by the Federal Reserve Bank showed that 61% of businesses faced big financial challenges in 2016. One action that small business owners take to cover emergencies is to apply for a traditional loan, but 74% of business owners who apply for a traditional loan from a bank get turned down.
An alternative way to get funded is to use a business credit card and leverage a 0% interest promotion. This is basically a short-term loan, usually between 12 and 18 months, that allows you to repay the funds at a 0% interest rate. You can infuse your business with much-needed cash flow without having to pay interest.
The only thing to beware of, though, is that if you do not repay the balance within the loan's term, all of the accrued interest will be billed to your account, often at a very high-interest rate. To avoid this, just make a monthly payment plan to repay the entire balance before the promotion expires.
3. Make Employees Authorized Users
A smart way to maximize rewards is to make your employees authorized users on your business credit card account. Many financial institutions will offer bonus rewards for adding authorized users, and you’ll earn additional rewards for their business-related purchases.
Doing this will also streamline your accounting process, saving you time and money, as you won’t have to reimburse your employees for expenses they purchase for the business. This strategy is a win-win for everyone!
4. Deduct Interest and Fees on Your Taxes
Any interest or late fees paid on your business credit card account are deductible on your company's taxes, so long as the card was used for business purposes. The Tax Reform Act of 1986 makes it possible for credit card interest to be taken as a tax deduction, as long as it’s business-related.
If your credit card comes with an annual fee, this membership cost can also be deducted on your tax return. In addition to interest and fees, any merchant “swipe fees” you paid to process credit and debit card transactions can be deducted as a business expense. Simply log into your merchant credit account, and tally up the credit card swipe fees.
5. Don’t Forget to Reedem Your Perks
The goal of using a business credit card is to get the most out of it by making purchases to earn rewards and then cashing in those rewards. Review the rewards program related to your business credit card and be sure to maximize every purchase, whenever possible.
You’ll be able to cash in your perks once they reach a certain threshold, which varies depending on the kind of program. Most companies offer a wide variety of ways to get your rewards, whether it’s a gift card, direct deposit, or account credit. Still, you will have to log into your account and actually redeem those rewards. Don’t let them go to waste—you’ve earned them!
To get the most out of your business credit card, review the terms and conditions of the rewards program, so you can be sure to meet the spending limit to qualify for any signup bonuses. Business credit cards are an excellent tool for getting the most tax deductions possible while keeping your business finances organized and streamlined—especially when adding employees as authorized users.
In addition, you can use your line of credit as an alternative source of cash flow, even as you continue racking up rewards on business purchases. Following these five steps will help you maximize your spending and keep your business finances in tip-top shape.