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The federally funded Paycheck Protection Program (PPP) dried up on April 16 and was replenished on April 24 with an additional $ 310 billion in forgivable loans – but that cannot be – still not enough.
Faced with unexpected cash flow woes amid an unprecedented economic downturn, small business owners scramble to find resources to help them stay afloat and prepare for an economic recovery that could last for years.
Many, like Bobby Warren from Wooster Media Group, are looking to credit cards to mitigate the current decline in income.
“I paid freelancers [this month] with my credit card to keep my business balance a bit higher, ”said Warren CNBC Select. This helped Warren avoid late fees on what he owed, even as he waited for overdue payments himself.
He is not the only one ; Eddie Davis, a small business financial expert with FINSYNC, argues that small business credit cards are often a critical asset in times of crisis. They allow companies to delay the impact of certain expenses on their cash reserves and potentially pay off “those expenses when PPP loan funds finally arrive, or in installments when the economy opens again,” says Davis.
Below, CNBC Select explains how small businesses are using credit cards to stay afloat as much of the country takes shelter in place.
“Tracking cash flow is more important than ever,” Davis told CNBC Select. Before you charge business expenses to a credit card, you’ll want to know exactly how much revenue you expect to generate over the next 15, 30, 60, and 90 days.
For example, if you have unpaid bills totaling $ 5,300 that you expect to be paid in 30 days, you know approximately what your cash flow will look like for a credit card billing cycle. This should create some structure for how you plan your spending.
And if you’ve been approved for a P3 loan that you expect to arrive within 10 days, you have time to plan how you’ll use it once you settle your staff salary costs. According to US Department of the Treasury, you can use PPP loans for up to two months cost, plus 25%, and they can be used for the following expenses:
- Payroll (including fringe benefits)
- Interest on mortgage bonds contracted before February 15, 2020
- Rent that was the subject of a lease before February 15, 2020
- Utilities, for which the service started before February 15, 2020
Many businesses don’t know exactly how long it takes to receive a PPP loan or the new Economic Impact and Disaster Disaster Loan (EIDL). The Small Business Administration reports 10 to 21 days, but some businesses are still waiting to receive their loans from the first set of applications.
While you wait, Davis recommends using software and billing tools to project your costs and income as far into the future as possible. Only then can you decide how to use the available loans and credits until the economy recovers.
When choosing between credit cards or loans, “preference should be given to the option that best fits the expected repayment schedule,” says Davis.
“An introductory rate of 0% APR is useful,” he says, but if you plan to take on debt beyond the introductory period, you should consider a loan, which will likely have a better interest rate.
To determine if you can afford to cover the expenses on a 0% APR credit card, you will need to add the total amount of expenses you want to fund with your credit card and divide it by the number of bill cycles you want to fund with your credit card. the introductory period lasts. .
For example, the American Express Blue Business® Plus Credit Card delivered with 0% APR for the first 12 months on purchases. After that, your APR will be at a variable rate, from 13.24% to 19.24%, depending on your creditworthiness (see rates and fees). Likewise, the Blue business moneyMT American Express Card offers an APR of 0% for 12 months (then 13.24% to 19.24% variable APR; see rates and fees). Neither card has an annual fee.
If you anticipate having to charge $ 10,000 in business expenses to your credit card over the next year, be aware that you will need to make payments of at least $ 833.33 per month to avoid paying interest at the regular APR during the next year. of the introduction. the period is over.
If you think you’ll need more than 12 months to pay off the fees you rack up during this economic downturn, you should consider a small business loan with a much lower APR.
In light of recent events, providers are more flexible than ever about the type of costs you can pay with credit, Davis explains. Rent, supplies and contractors are good examples.
“The seller (an owner, for example) is probably having cash flow disruption himself,” he says. They may be more likely to accept payments through third-party payment platforms like Plastiq, RentMoola, or Radpad (for rent), and even Venmo or PayPal for other types of goods and services.
“If a customer offers to pay them through a fintech solution that allows them to receive payment today, it’s certainly better than waiting until that customer has money available,” says Davis. Suppliers and contractors might not normally be willing to accept a credit card, he says, “but [they] are more open-minded in today’s economy.
While you can get by with a credit card for day-to-day business expenses like rent, utilities, and independent contractors, keep in mind that many payment processing platforms charge a 2-3% fee. Before embarking on any of these solutions, be sure to calculate whether it is the most sustainable option in the long run and make an informed decision based on what is best for your business.
“From a rewards and cash flow perspective, credit cards are preferable because of their ability to delay the impact on cash flow,” says Davis.
But there are also other advantages: many business cards, like the The American Express Business Platinum Card® and the American Express® Business Gold Card, come with top notch rewards on meals, air travel and hotels. This can be great for earning rewards while entertaining business partners and treating customers.
With the Amex Business Platinum Card, you will receive up to $ 200 in Airline Fee Credit for incidental charges on an eligible airline each year, as well as unlimited access to the American Express Global Lounge collection and up to $ 100 credit for Global Entry / TSA PreCheck fees (every four years). You can also get up to $ 200 annual statement credit for Dell purchases.
Meanwhile, the Ink Business Preferred® Credit Card, one of the CNBC Select programs best credit cards for small businesses, offers business owners with free employee cards 100,000 bonus points after spending $ 15,000 on purchases in the first three months after account opening, plus 3X points for every $ 1 spent in categories following each anniversary year of the account: travel; shipping of purchases; Internet, cable and telephone services; and advertising purchases with social media sites and search engines. (This applies to the first $ 150,000 spent on combined purchases, then earn 1x point for $ 1 on all other purchases.) There is an annual fee of $ 95.
In an age when most travel has stopped, it’s important to think carefully about your spending so that you can choose a small business card that offers the best rewards program for your current spending needs.
Small business credit cards come with undeniable advantages and can help you overcome cash flow interruptions in uncertain times. If you would like to apply for a small business credit card, you can check your business credit score free. Or, if you are the legal owner of the business, you can often use your own personal credit score. This applies even if your business is a side activity, such as dog walking or babysitting.
When looking for the right credit card for your business, think about what kind of flexible payment options you need, what rewards and benefits would be most helpful for your spending habits, and remember to think long term. You want to look for a credit card that can hold you back during the current crisis, while still offering potential value in the future.
To determine which business cards offer the best value for money, CNBC Select analyzed 21 of the most popular credit cards available to US business owners. We compared each card on a range of features, including annual fees, employee card fees, rewards, welcome bonus, introductory and standard APR, and overseas transaction fees, as well. as factors such as credit requirements and customer reviews when available. We’ve also factored in the additional perks, the application process, and the ease of redeeming points.
The main criteria for our ranking were reward rates and additional benefits, such as surrender premiums, insurance coverage, and expense management features. The more benefits a card had, the higher it ranked on our list.
Co-branded business cards, such as airline or hotel specific cards, were not on our final list due to their often complex reward systems and the ability to limit your travel options to a specific brand. .
For pricing and fees for the American Express Business Platinum Card®, click here.
For the rates and costs of the American Express® Business Gold Card, click here.
For rates and charges for Blue Business CashMT American Express Card, click here.
For Blue Business rates and fees® Plus American Express Credit Card, click here.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.