When used properly, business credit cards can be a valuable tool for small business owner.
From building up your business credit score to making it easy to differentiate between personal and business expenses, using a business credit card to make certain types of purchases has a lot of advantages. Research shows that small business cards account for $430 billion in spending, with that projected to increase to more than $680 billion by 2022.
As the director of small business for Discover Financial Services, Meera Sridharan knows firsthand the type of value that business credit cards can provide to entrepreneurs. In her current role at Discover, Sridharan is responsible for reinventing the company's small business product offerings and experience.
We recently had a chance to speak with Sridharan about the benefits of using business credit cards, what to look for when choosing one and the most responsible ways to use them. We also asked her some rapid-fire questions about technology, her career and advice she has received over the years.
Q: What are the pros and cons for small businesses of using credit cards?
A: One of the most important reasons to get a business credit card is to help separate your expenses, which may not be something small business owners typically think about until tax time. A business credit card makes it easy to keep your personal and business expenses separate.
Other pros include earning rewards on all of your purchases. There are a lot of expenses associated with running a business, so you might as well get cash back for making those purchases. And most small business owners have likely faced cash flow issues at one point or another, especially in the early days of growing their business, so having access to credit can relieve some of that pressure.
One thing to keep in mind with any financial instrument is having the discipline to pay your bills on time. Be careful about late fees and interest.
Q: What are the factors small businesses should be considering when choosing a credit card?
A: As a small business owner, your focus is on growing your business. That's your passion; that's why you're in the business. The most important factor when choosing a credit card is to pick something simple that works for your business, so you can focus on the things that matter most.
The other thing to consider is to make sure you're avoiding unnecessary fees, like annual fees and foreign transaction fees. [Interested in getting a business credit card? Check out our best picks.]
Q: Are there certain types of purchases that make the most sense to put on a business credit card? Conversely, are there any purchases that you should never put on your business credit card?
A: Most of the purchases you make to run your business can be put on your business credit card. That includes things like office supplies, paying for gas and meals when you travel for work, and even treating your employees to lunch. By putting expenses like these on your credit card, you can get rewarded for all of your purchases.
I would avoid using your business credit card as a substitute for a large installment loan, such as when purchasing new machinery. For that, you may be better off considering a business loan.
Q: What other tips do you have for small businesses when it comes to using their credit cards wisely?
A: Pick a card that's simple and that works for your business. You don't want to have to jump through hoops when it comes to earning or redeeming rewards, or to pay unnecessary fees for a long list of features that may not make sense for your business.
It's also important to maintain financial discipline, just like you would with your personal credit card, by making on-time payments and, when possible, paying off your balance at the end of each pay period.
Q: Will you have a hard time getting a business credit card if your business is new and doesn't have a credit score?
A: According to the Small Business Administration (SBA), 30 percent of new businesses fail within their first two years. Banks have to take into account the reality that new businesses present a higher credit risk than more established businesses. However, in addition to business tenure, most banks consider your personal credit score while extending credit.
Q: If you don't have a business credit score, what are some good ways to start building one?
A: Getting a business credit card is one of the best ways to start building business credit. By establishing good payment behavior with your business credit card, you can establish healthy business credit, which can make a big difference when it comes time to apply for a larger business loan.
Q: What happens if your startup fails and you can't pay your business credit card off?
A: A business credit card is no different from a personal credit card in that you carry the liability of paying off the balance. Make sure to pay off your credit card loans – be it your business or personal credit card – because it will impact your credit score.
Q: What piece of technology could you not live without?
A: I'd have to say Amazon's Alexa, because she's like a member of our family. My kids love talking to Alexa. They can ask her to play their favorite music, she tells us the scores of the games we may have missed, she even helps us with weather so we can plan our outfits for the day. I would miss Alexa if she were gone. [Want to learn more about how you can use Alexa for your business? Check out our guide.]
Q: What is the best piece of career advice you have ever been given?
A: You have to be passionate about your work. No matter where you are in your career, if you enjoy what you're doing, everything else will fall into place. This career advice rings true for me, especially in the face of challenges. If you love what you're doing, you can get through anything.
Q: What's the best book or blog you've read this year?
A: I'm currently reading "Sapiens: A Brief History of Human Kind" by Yuval Harari, and I've also started "Homo Deus: A Brief History of Tomorrow," which is the sequel. It's been interesting to read them together, because "Sapiens" is a look back at who we are as a species, and "Homo Deus" is a look forward about who we'll become. It's fascinating to consider how our roles are going to change, how technology will change and how our jobs will change, taken along with the social and climate impact. It's pretty powerful.
Q: What's the biggest risk you've taken professionally? Did it pay off?
A: A lot of roles I've taken on at Discover have been pretty risky, which is what I prefer. One of the biggest risks was when I became chief of staff to our chief marketing officer. It was a multidimensional role with very high exposure, and it involved a lot of critical and strategic problem-solving. It was also a big change from my background in analytics to more of a general management role. The risk paid off because it ultimately led to my current role overseeing the launch and rollout of our new Discover it Business card.
Q: What's the one thing you want to make sure you accomplish this year?
A: Discover, as a company, has embraced a more agile, test-and-learn mentality, especially from a technology standpoint. One of the things I want to accomplish this year is to bring that same approach to the Discover it Business card rollout, so that we're able to move more quickly when it comes to meeting the evolving needs of small business owners.