If you own a bakery, one of the most important forms of financing you’ll need is a business credit card. As a baker, you need to stock up on ingredients or purchase equipment and cookware. Credit cards give you quick access to cash in case you find yourself face to face with broken equipment or a surge in orders.  

Not only that, but business credit cards come with business-centric features that make accounting easier. For instance, it can help track expenses and generate expense reports. It’s also a great way to separate business from personal expenses. With all that, you can make auditing easier for you and your accountant come tax time.

But the key to maximizing the use of your credit card is to choose the best for your business. But with the myriad of benefits out there, how will you pick the right one? If you’re planning to apply for a business credit card, here are some pointers to keep in mind.

1. Understand the different business credit card types

Credit card providers offer different types of credit cards for personal and business use. For businesses, they offer two options: charge cards or standard business credit cards. Here’s how each type works.

Charge Cards

Charge cards are credit cards that require full payment at the end of every billing period. In other words, if you used your charge card to purchase a $5,000 worth of ingredients, baking supplies, or equipment, you’ll have to pay the full $5,000 at the end of the billing period, whenever that may be. Except for the payment structure, charge cards have more or less the same features as that of a standard business credit card. 

Charge cards don’t have interest rates since you’ll pay the balance at the end of the billing period. They also don’t have a spending limit, making them harder to qualify for than standard business credit cards.

Standard Business Credit Cards

While charge cards require business owners to pay the full amount at the end of the billing cycle, standard business credit cards do not. Instead, businesses can choose to pay the balance in full at the end of each billing period or spread out the payments. Companies, especially seasonal ones, usually choose the latter to maintain a stable cash flow.

However, with a standard credit card, the provider will charge an interest rate on the balance you’ll carry each month. There’s a pre-established limit, so you can use the card to pay for your expenses as long as you don’t exceed the maximum credit amount.

A charge card may be a viable choice if you can commit to paying your monthly credit balance in full each month. But if you prefer to spread your payments out to protect your cash flow and don’t mind the interest rates, a standard business credit card makes more sense.

2. Examine your business’ expenses

When it comes to choosing business credit cards, there’s no such thing as a one-size-fits-all option. Each business is unique, and therefore, will have different needs. When choosing a credit card, consider your business lifestyle. Which category does your bakery usually spend the most in?

The primary reason why you need to cross-examine your expenses is so that you’ll know where you usually spend most of your money in. Once you know, it will be easier to narrow down your credit card options to those that offer the most rewards in the categories you spend the most. For example, if you provide delivery services, you may spend a significant amount on gas. That said, a credit card that offers rewards points or cashback on fuel purchases may make sense. Or, if you do a lot of ads for your bakery to increase your reach, you may want to choose a credit card that offers rewards on digital advertising.

Regardless of your expenses, choose a business credit card that offers the best rewards system for your business lifestyle. Once you’ve accumulated enough points, you can redeem the rewards and save your business a significant amount of money in the long run.

3. Consider the annual fee

Some rewards card offers annual fees, while others may not charge one at all. If your bakery is in its early stages of operations, choosing a credit card with no annual fees may make sense. This allows you to have a credit line you can tap into anytime, especially during emergencies (e.g., one of your ovens suddenly broke down), without worrying about a hefty fee adding up to your annual expenses.

That is not to say that you should automatically disqualify a business credit card with an annual fee. Generally, these types of business cards come with hefty sign-up bonuses and rewards rates, which may make the annual fees worthwhile.

One good example of this is the American Express Business Gold Card. Although it comes with a higher annual fee ($295), businesses can earn up to 4 points per dollar for the first $150,000 spent on the top 2 categories that the company spends the most each month.

The key here is to do the math. If the card's benefits make the annual fee worthwhile, then feel free to go with it. However, if you don’t necessarily make use of the benefits the card offers, it might be safer (and more cost-effective) to go with the card without an annual fee.

4. Review the APR and other fees

Aside from the annual fee, you should also review the card’s APR if your business carries a balance each month. The APR, or annual percentage rate, refers to the yearly interest rate charged on your credit card balance. Knowing how much the lender will charge can be tricky as lenders usually provide ranges at the time of inquiry. Once you’re approved, only then will you be assigned an APR.

In general, lenders will base the APR on your personal and business credit. The higher your credit score is, the lower the APR will be. So, it’s also important to consider your personal and business credit score when choosing a business credit card.

Other card providers may also offer 0% introductory APR for a limited time (usually one year). This means that the business won’t be charged any interest rate on the balance they carry during the first year of using the credit card.

Other fees that might add up to the total cost of your credit card include:

  • Late payment penalties
  • Foreign transaction fees
  • Over-the-limit fee
  • Cash advance fee

Be sure to ask the credit card company what fees they charge on the cards so you’ll know how much you’d have to pay in the future. It’s always wise to go over the contract carefully before signing, as some of the fees may be hidden within the fine print.

5. Check their customer support availability

Customer support is one of the most important considerations when choosing a business credit card. Issues related to a credit card are usually time-sensitive, and if you encounter problems, they should be reported and resolved immediately. The last thing you want is to deal with the anxiety of waiting a few hours to report your credit card issues.

Ideally, the credit card company should have several channels (e.g., chat, phone, email, etc.) for customer support. Aside from that, the clients should be able to contact them immediately to resolve the problems as soon as possible.

You can look at the credit card company’s customer support by searching for reviews online. If you know someone using the business credit card, you can also solicit advice from them. 

Final Thoughts

The business credit card you choose for your business can make or break your financial success. That’s why it's important to compare all the different features of each credit card before making a decision. Make sure you understand how credit card works, including the APR, rewards system, customer service, annual fees, and other associated fees, so that you can make an informed choice about which card is best for your business.

About the Author

Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.