Entrepreneur Insight

How Businesses Can Leverage Credit Cards and Grow

Business credit cards can help with payments, cash flow and building credit for future financing.

Credit cards are useful for more than just making purchases. Nowadays, with the various rewards and benefits that issuers offer, business owners can use business credit cards not only as additional funding, but also as a useful tool to manage and streamline their operations. Here’s how you can leverage a business credit card to help manage your payments, bridge cash flow gaps and build credit so that you can grow your business.

Building credit to grow your business

According to a report by the National Small Business Association, 27 percent of businesses surveyed said that they had difficulty finding necessary funding. Bank loans or lines of credit are the most popular forms of funding that small businesses apply for (at 87 percent), with credit cards coming in at a distant second at 27 percent. However, lenders require not only strong credit and business finances, but occasionally also collateral, and like to know your industry and how long you’ve been in business, says Gerri Detweiler, education director at Nav, a small business financing company. On the other hand, credit card issuers mainly care about your credit history.

“The issuers love to have you as a cardholder because business owners tend to spend more on their credit cards—their purchase volume is much higher, and that is good for the issuers,” shares Detweiler.

Building credit is integral to obtaining other forms of financing for your business, but startups and newer businesses often have trouble in that area because of their lack of credit history, says Disha Lal, e-commerce and cards manager at East West Bank. That’s where options like the Brex corporate card prove useful to businesses, she adds.

Although corporate cards differ from small business cards, mainly in the size of the business and who is liable for payments, most issuers still require some kind of credit history, which is difficult for businesses that are just starting up or entering new markets. However, Brex, which specifically caters to businesses in industries that are underserved by credit companies, requires no security deposits or credit history because they primarily underwrite based on a company’s bank account deposit balance. Brex also helps businesses build up their credit by reporting on-time payments to credit reporting agencies like Experian and Dun & Bradstreet.

“Our founders recognized there was an opportunity to serve businesses that were newly formed and had limited credit histories, but were also very credit-worthy because they had raised a lot of money,” says Michael Tannenbaum, chief financial officer at Brex.

Getting financing for your business, early on

Business credit cards are also one of the most flexible types of financing for any type of business, even businesses considered “higher risk” by lenders, says Detweiler.

“For example, we have a lot of customers involved in real estate—real estate, in general, is considered higher risk for lending options,” says Detweiler. “They may have trouble financing with a traditional lender. But what a business card is—it’s agnostic. Once you get the card, the amount of credit is available to you regardless of the type of business you have.”

(Photo credit): Gettyimages.com/ uschools

“Building credit is integral to obtaining other forms of financing for your business, but startups and newer businesses often have trouble in that area because of their lack of credit history."

-Disha Lal

Unlike a loan, applying for a business credit card does not require that your business have been operational for a certain number of years. Most credit issuers make decisions based off of your personal credit score and all available income, Detweiler explains.

“I know someone, personally, who started his business, and two days later signed up for a business credit card,” she shares.

Managing payments and accounting

It’s generally a good idea for all businesses to separate their personal finances from their business finances, yet 46 percent of all small businesses use personal credit cards to make purchases.

“If you do not separate these purchases, it makes it hard come tax time, unless you are diligent in keeping up on bookkeeping,” explains Detweiler. “If you keep things on your business credit card, at least you have a record of the transactions of the business, and that will be much easier for you or your accountant when it comes to tax time.”

Business cards also offer ways to track and manage expenses, such as integrating with accounting systems like QuickBooks and NetSuite. That seamless integration into accounting software, along with their receipt-capture capabilities, is what convinced the Santa Monica Proper Hotel, an East West Bank client, to sign up for a Brex card.

“We wanted something that was very convenient and connected to our operating account,” says Rei Ongawan, assistant director of finance at the Santa Monica Proper. “From the Brex side, it was very easy for our accounting side to reconcile at the end of the month because you can just export everything. It gives very detailed information on when, where and which card was used during that month, so it’s very easy to hold the managers accountable on who used their Brex card.”

Ongawan also finds Brex’s receipt capture feature, where card users can quickly take a photo of their receipt and upload it onto the app with notes, very handy. Features like these can be extremely useful to business owners because it frees up a significant amount of time for them to focus on other areas, such as growing their business.

“In terms of expense management and receipt management, that’s where the automation and the reconciliation is key,” says Lal. “With the [Brex] corporate card and the integration into their accounting system, they’re able to reconcile on almost a daily basis and have better control, as well as monitor how their expenses are ramping up, or what they need to do to control that.”

Business cards also offer ways to track and manage expenses, such as integrating with accounting systems like QuickBooks and NetSuite.

(Photo credit): Gettyimages.com/Vladimir Vladimirov

Ongawan adds that Brex’s accounting integration features have made the process much quicker for him. “I think on average, and especially for month-end close, it usually takes me about 20 minutes at most to reconcile all these charges,” he shares.

Bridging the cash flow gap

Sometimes a company needs to pay vendors or purchase inventory immediately, but doesn’t have the necessary cash on hand. In particular, charge cards (which differ from credit cards in that they require you to pay the full balance each month) can be a good way for debt-averse businesses to get some float, says Detweiler.

Having those extra 30 days to pay off the balance can be a huge boon for companies, especially if they’re in a cash crunch, adds Lal. “It helps bridge their cash flow gap,” she explains. “It allows them to be more flexible and have better control on their payables, as well.”

Although Tannenbaum says that Brex is more of a payment mechanism, they do offer a corporate card for e-commerce businesses that allows 60 days to pay off the balance, interest-free, for some “very short-term working capital.”

Earning rewards and perks for your business

A lot of cards offer rewards for business-related purchases, which business owners can then redeem for a statement credit, travel rewards, or whatever their particular card offers. For example, one small business uses the points earned from their business credit card as a travel reward for their employees.

Brex, in particular, decided to tailor its rewards program to the areas it focuses on: startups and life sciences. For both their startups and life sciences cards, businesses can earn up to 7 times the points for purchases; the only difference is on what purchases they earn the most rewards. Along with their rewards program, Brex also offers exclusive discounts with vendors that they believe many startups will utilize, such as a $5,000 credit for Amazon Web Services.

“We try to offer rewards in high cashback categories in areas where they spend a lot,” says Tannenbaum. “Because we’re a newly formed credit card, we can offer rewards in something like SaaS, which is online software, which wasn’t even a feature of the credit card market when most credit cards were being created, so it’s very unique. Or on the life sciences card, we offer a differentiated multiplier on lab supplies.”

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