Editorial · August 4, 2024
Business Credit Cards: How to Compare Fees and Rewards
Business credit cards work under different rules than personal cards, so the offer on the page is only part of the story. Compare four things side by side: the annual fee, the APR, the rewards and who pays if a card is misused. This guide shows how to do that in about an hour.
Start with who the law protects
Most federal credit card rules were written for consumers. The Truth in Lending rules, known as Regulation Z, say that credit extended mainly for a business, commercial or agricultural purpose is exempt from most of the regulation. The CFPB's own commentary adds that a business-purpose card is covered only by the sections on card issuance and on liability for unauthorized use.
That matters because several protections added by the CARD Act of 2009 sit in sections that apply to consumer credit plans. Two examples are the rule that an issuer must consider your ability to make minimum payments, and the limits on raising your rate or fees on existing balances. Both are written for consumer accounts. A business card may be covered by the same promises in the issuer's contract, but the law does not require it.
So read the cardholder agreement, not just the summary box. If a protection is not in the contract, do not assume you have it.
Compare the annual fee against what you will use
The annual fee is the easiest number to compare and the easiest to misjudge. A card with no fee can cost more than a card with a fee if its rate is high or its rewards are thin. Start by writing down the fee for each card, then ask what you get back for it.
Look for these items in the fee table: the yearly fee, the fee for each extra employee card, the foreign transaction fee, the late fee and the cash advance fee. Some business cards charge for employee cards, and the cost adds up quickly if ten people need one.
Then do the math. If a card charges a yearly fee and returns rewards worth less than that fee on your normal spending, the card loses money. If you spend a lot in one category, a card that pays more in that category can win even with a fee.
Check the APR, even if you pay in full
Many owners say they pay the balance every month, so the APR does not matter. Plans change. A slow quarter or a late client payment can leave a balance on the card for the first time. That is when the rate matters most.
Find the purchase APR and the penalty APR in the rate table. Note whether the rate is variable, which means it moves with a market rate such as the prime rate. Note how long any introductory rate lasts and what the rate becomes afterward. Because the consumer limits on rate increases may not apply to a business card, ask the issuer under what conditions it may raise your rate and how much notice it must give.
Also check the grace period. This is the number of days you have to pay before interest starts. Some cards give no grace period at all on certain balances, and that detail rarely shows up in the headline offer.
Weigh rewards by what they are worth to you
Rewards come as cash back, points or miles. Cash back is the simplest to value. Points and miles can be worth more or less depending on how you spend them, so test them against a real purchase you would make anyway.
A simple method works well. Take your last three months of card spending and sort it into categories such as office supplies, travel, advertising and fuel. Apply each card's earning rate to each category. Add up the total, subtract the annual fee and compare the results. Ignore bonus offers at first, since they pay once, while earning rates repeat every month.
Watch for caps and limits. Some cards pay a higher rate only up to a spending limit each quarter or year. Others require you to activate a category or enroll before you earn the higher rate.
Ask who is liable if a card is misused
Liability is where business cards can differ most from personal cards. Under Regulation Z, a cardholder's liability for unauthorized use is capped at $50, and that rule applies to business-purpose cards too. But there is a special rule for larger programs. When an issuer provides ten or more cards to the employees of one organization, the issuer and the business may agree in writing to a different level of liability for unauthorized use, up to and including the full amount.
The same rule says an issuer or business can impose liability on an individual employee only within the limits set by the regulation. The CFPB's commentary also notes that an issuer cannot rely on this rule if the business is clearly too small to have ten or more employees, for example a company with only three.
If you plan to issue cards to staff, ask for the liability terms in writing. Ask how fast the issuer freezes a lost card, whether employee spending limits can be set per person, and who gets the statement and the alerts.
Put the results in one table
Make a simple grid. Put each card in a row. Add columns for the annual fee, the cost of employee cards, the purchase APR, the grace period, the net value of rewards and the liability terms. Mark the best number in each column.
Then ask three plain questions. Which card costs the least if you carry a balance? Which card returns the most on your real spending after the fee? Which card gives you the clearest written terms on liability and rate changes? If one card wins on all three, the choice is easy. If not, decide which risk matters most for your business and choose on that.
Finally, keep a copy of the terms you were shown on the day you applied. Terms can change, and your records will help if you need to ask the issuer a question later. This article is general information and is not legal or financial advice.