They say a credit card is like free money for a disciplined borrower. This applies not only to individuals but also to small businesses. In fact, as per a 2022 PwC report, the credit card industry in India has grown at a CAGR of 20% in half a decade; a decent chunk of the growth is from small businesses choosing from a plethora of credit cards available in the market.
In this guide on credit cards for small businesses, we shall explore types of credit cards, the importance of picking the right one, and how to choose the best credit card for your small business. But first, let’s briefly understand how a business credit card differs from a regular one in India.
What is a business credit card?
Unlike a card issued to an individual, a business credit card's features are tailored to assist a business owner's needs in managing cash flow, finance streamlining, expense tracking, etc. It usually comes with higher credit limits and rewards for business-related purchases.
Types of business credit cards in India
Before you begin to take your pick, you should find out what types of small business credit cards are available in India. Different banks categorize their small business credit cards differently, but broadly, they are of the following types:
1. Business Rewards Credit Cards: These cards offer rewards, cashback, or points on business-related purchases.
2. Secured Business Credit Cards: These are ideal for startups or businesses with low credit scores that are open to offering a security deposit. Kotak811's Dream Different credit card is one such option.
3. Low-Interest Business Credit Cards: These cards offer lower interest rates, which is beneficial for businesses willing to carry a balance.
7 tips to choose the right credit card
Now, given the types of credit cards and various brands offering similar features in overlapping categories, it falls upon small business owners to decide which one meets their needs the best. While their needs can be different, banking experts advise looking for the following seven features in a credit card:
1. Check interest rates and fees: Since paying back the loaned amount is at the crux of credit card usage for small businesses, it makes sense to start by looking at their interest rates and fees. You would want the one with the lowest interest rates and minimal fees for the types of transactions you plan to make the most.
Also, be aware of any annual fees, foreign transaction fees, and late payment penalties.
2. Evaluate credit limits: Check the credit card's limit and the options available to increase it over time. You want one that offers a high enough credit limit for your regular usage and emergency expenses. At the same time, the card should come with the option to extend your credit limit in the future.
3. Compare rewards and benefits: You will see many small business credit cards offering similar credit limits and interest rates. They are further categorised by the types of rewards and benefits they offer. Compare the options to see which card offers the most relevant perks for your most frequent or largest business transactions.
4. Look for additional features: As covered earlier, the benefit of small business credit cards extends beyond regular credit cards in their features for business finance management. So, watch out for any additional features that you like, this includes expense management tools, employee cards, insurance benefits, etc.
5. Ask about customer support: A credit card with proactive customer support is critical for resolving any issues that may arise within time with the least loss/security concern. So, consider a credit card company that is known for reliable customer service.
6. Read review: Lastly, read reviews. Connect with people who are already using a certain small business credit card you are interested in to hear about their experience, so you can assess the card’s real-world performance.
How is a business credit card eligibility determined?
Now, choosing the right credit card for your startup is not a one-way street. While you decide on a credit card that suits your needs, the credit card company will also assess whether you are a creditworthy borrower or not. So, before you send any application for a small business credit card, you should self-assess your eligibility.
While there are different credit cards and their providers have distinct criteria, here are some general factors to consider:
- Credit history: Good scores yield better terms and higher limits.
- Business revenue: Lenders assess revenue for repayment ability.
- Time in business: Established businesses get more favourable terms.
- Industry type: Risky industries face tougher approval and terms.
Conclusion
When choosing a credit card for your small business, it's essential to make a smart decision. Rushing into a choice could lead to unnecessary financial stress instead of the support you need. Take your time to explore options that align with your business goals. From rewards to payment flexibility, ensure your credit card becomes an asset rather than a burden.
This way, the credit card won't just be a mere financial tool but also play the role of a partner in your business journey.
FAQs
1. Which credit card is best for businesses?
The best one is the one that suits your business needs and spending habits.
2. Can you get a business credit card with bad credit?
Yes, some issuers offer secured business credit cards for those with bad credit. However, they typically come with small credit limits and high interest rates, so choose wisely.
3. Do lenders check your personal credit score for a business credit card?
Yes, lenders often consider both personal and business credit scores while evaluating the application for a credit card for a startup.
4. Does cancelling a business credit card hurt your credit?
Yes, it can potentially lower your credit score by affecting your credit utilisation ratio and length of credit history.
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This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empanelled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees, and contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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