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How to Use and Accept Credit Cards for a Small Business

August 16, 2023 By
Kevin Lin
customer using their credit card to pay at check out in a store

Gone are the days when customers simply preferred to pay in cash. 

In today's economy, accepting credit cards for a small business is essential for any company that wants to keep up with the growth of non-cash payments. It's now of utmost importance to offer customers the payment method they prefer, whether it’s cash, credit card payments, contactless payments, app-based payments, or buy-now-pay-later.

In addition, using designated business credit cards can help to keep personal and business finances separate. As an added benefit, your company can earn rewards, better manage cash flow, and improve its credit rating. 

In this guide, we will equip you with in-depth knowledge on how you can accept and use credit cards for your small business, and why it’s best to separate business and personal credit card use. 

Using business credit cards to fund your small business

Business credit cards are so much more than a way of conducting payments. Using a credit card for business spending carries a range of benefits for you, your company, and other stakeholders such as your employees, bookkeepers, and accountants.

In particular, the following benefits stand out: 

  • Access extra funds to tackle short-term cash flow issues 

Given the current state of the economy, many small businesses struggle financially. Using credit cards to bridge short-term funding needs is one way of surviving difficult periods without asking for credit approval on a new loan.

  • Easy bookkeeping and expense monitoring

By giving your employees individual credit cards with custom spending limits, you can monitor their business spending and make it simpler for your bookkeepers to reconcile payments.  

  • Access rewards programs

By signing up for business reward programs, you can reduce costs and earn extra funds with offers such as cashback. 

However, there are also things to watch out for when using business credit cards, including:

  • High interest rates

Compared with small business loans or alternative funding options such as invoice financing, credit cards carry a much higher cost if you don't pay your balance in full.

  • Security issues and unauthorized use

It's a good idea to tightly monitor employees' use of business credit cards, as unauthorized use, overspending, and fraud can lead to financial losses, reputation damage, and potential legal issues for your business. 

  • Overspending

Due to the ease of using a business credit card, some small business owners may spend too much, which can lead to unnecessary debt. 

As a responsible business owner, you should carefully consider any potential use of business credit cards as a funding source and employee perk, while staying mindful of the potential downsides.

Can you use a personal credit card for business?

In principle, this is an option. However, using your personal credit card for business expenses puts your personal credit at risk, and can expose you to financial and legal complications. 

Using a credit card in the name of your company for your own needs will not help you build business credit. In addition, personal expenses will need to be separated from your business bookkeeping and accounts, creating additional overhead for your accounting department. 

If you frequently use your company card for personal expenses, it can lead to some of the following complications:

  • Affect both your personal and business credit score in ways you did not anticipate and can’t control
  • Compromise legal protections for your corporation or LLC
  • Miss out on valuable tax deductions and fail to build a business credit history

How to accept credit card payments for a small business

Nowadays, accepting card transactions is a straightforward process for any small or medium-sized business (SMB), no matter your size. 

To get started accepting cards, follow these steps: 

1. Set up a merchant account

A merchant account is a special type of bank account that enables your business to accept payments via debit or credit cards. Most banks that serve business customers help with setting up such an account. In most cases, you will need to provide some straightforward information about your business and the authorized signer on the account (like the company director). In addition, most providers will ask you about your tax ID (EIN), your line of business, and estimated processing volumes.

2. Choose a merchant service provider

The merchant service provider is an intermediary between your business and your customer's credit/debit card account. It's the company you encounter when making a payment as a customer on a website — for example, Square, Stripe, or PayPal. Some larger banks like East West also offer merchant services. 

3. Decide whether you require a Point-of-Sale (POS) system

If you're planning to do credit card processing in a physical location, you’ll require a POS system or smart terminal — a device that contains software and hardware to enable your business to conduct card transactions. These are the systems you use as a customer when tapping your card or entering your PIN, and they’re provided to your business by the payment processor or merchant services provider. 

4. Understand credit card processing fees

Providers charge different fees for credit card transactions. All-in-one providers such as banks, Stripe, and Square tend to charge between 1.5% to 3.5% of the total transaction cost. 

5. Ensure security compliance

Normally, this is not an issue for small businesses that accept payments using an all-in-one service provider. However, some businesses prefer to use different hardware and software for processing payments or prefer to build their own payment gateway. In such cases, they need to comply with the Payment Card Industry Data Security Standard (PCI DSS), an industry standard that helps protect customers’ credit card information and reduces the risk of data breaches.

Which credit card processing is cheapest for small businesses?

The cost of payment processing depends on many factors. Typically, the fees charged by credit card processors vary based on the volume of transactions, meaning the dollar amount and number of transactions your business processes every month. There are also different fees based on an individual business's customers and transaction types — generally, fees are higher for high-risk industries and higher-risk customers.

If you're looking for an all-in-one solution for an average SMB that does not operate with high-risk customers or in high-risk industries, it makes sense to compare large all-in-one payment service providers (which typically offer flat fees). The two most prominent companies in the space are Stripe and Square.

To find the right provider for your needs, look for the best value in terms of features, fees, integrations, customer reviews, and more.

Grow your business by building a relationship with your bank

The importance of cultivating a strong relationship with your bank cannot be overstated — especially for small businesses. A bank that understands your business and regularly communicates with you will be able to help get you better loan terms and expedite the application process for any financial services you require for your business.

Banks like East West Bank offer tailored financial products from deposit accounts to commercial loans and credit card services. We support SMBs from various industries, help with business credit building and provide state-of-the-art banking services. 

On top of that, a strong banking relationship could open up a world of opportunities for your business. Communication, honesty, and a track record of success are key — and will allow you to grow steadily. 

Create a thriving business with credit card transactions

By accepting credit cards, you can attract more customers and increase your sales. Today, it can also significantly increase customer loyalty because it helps streamline the overall experience. 

Accepting credit card payments is not a cash-flow stopper anymore, either. Today, funds received by credit card purchases are typically deposited into a business’s bank account within a few days. Plus, you are protected in case fraudulent transactions occur.  

As a busy business owner, you need a processing provider that enables you to accept payments easily and set everything up in one go. Find out more about how you can open a merchant account at East West Bank. Whether you want to set up payment terminals for in-person, online, or over-the-phone payments, we've got you covered.