You must have heard the phrase "small businesses are the backbone of the American economy," and every bit of it rings true. The U.S. Small Business Administration (SBA) says that 99.9% of all U.S. businesses and 99.7% of firms with paid workers are small businesses with 500 employees or less.

So, if you're a small business owner, you play a significant role in keeping the American dream alive. However, responsibilities never come easy, and being a small or medium-sized business (SMB), the challenges only present themselves more confidently.

One option for you to bypass the financial aspect of these challenges is using credit cards. 

In this article, I will discuss the advantages of using credit cards for small businesses and share some easy tips on making the most of them.

Let’s get started!

How credit cards benefit SMBs

Easy access to funds

One of the significant challenges SMBs face is the inability to generate funds quickly to make the purchases they need to extend their service or product. 

You have to spend money to make money, and to spend money you have to have cash, right? Well, what if you don't have enough cash on hand? 

That’s where credit cards come in handy.

Credit cards offer small businesses a simple and efficient way to access credit without applying for a loan. With this line of credit, you can purchase anything you need for your business, from supplies to equipment.

Rewards and perks

One of the primary reasons consumers use credit cards is their reward offerings. Why not use the same advantages for your business? 

Business credit cards include benefits that traditional financing sources don't offer. These benefits include cashback, points, and travel rewards. With extended usage, these rewards can add up quickly and help you save money on business-related expenses.

However, it's essential to research and choose a card that provides the rewards that complement your business needs. 

Build business credit

By getting a credit card and making timely payments, you can build your business’s credit score over time, making it easier to secure larger loans for more significant purchases. 

Access account management tools

Most business cards offer financial summaries at the end of each quarter and year, and you can also download purchase records to Excel spreadsheets or directly to accounting programs like QuickBooks. This makes it easy to keep track of your spending and simplifies things when it's time to do your taxes.

Easily manage employee spending

If your employees use their personal debit cards for business expenses, reimbursing them can be challenging. Using a dedicated business credit card, you can optimize the process. 

Employees can use the card for business expenses, and you'll get one bill each month that includes all of your spending and that of your employees.

Hence, you can closely monitor their spending, set spending limits, and freeze cards as needed.

How small businesses can use credit cards effectively

All good things come with a downside. So, it's essential to figure out how to maximize the pros and minimize the cons.

When it comes to credit cards, two of the major cons include overextending your credit to the point that you start struggling to pay off the balance on time and accidentally using it for personal expenses.

Here are some tips to get the best out of your business credit card while minimizing its drawbacks. 

Set clear rules

Without setting clear guidelines, credit card usage doesn't take much time to get out of hand. So, spell out the rules of using the company card to all the employees who'll have access to it and follow them yourself. 

The rules should include which expenses the company’s credit cards should be used for, how much employees can spend, and how often they can use their cards. Put the policy in writing and have every employee issued a card read and sign it. After they do, give each cardholder a copy to use for reference.

Setting clear rules will ensure everyone, including yourself, adheres to the company's budget.

Track expenses

The set-it-and-forget-it attitude doesn't work with credit cards. You should periodically track the expenses made using the company card by going through the online statements provided by the credit card company. 

Tracking your business expenses will help you optimize your budgeting and tax preparation and promptly identify fraudulent activity.

Monitor credit utilization

Credit utilization determines how much of your available credit you're using, and it's a good idea to keep it within 30%. If your credit utilization gets higher than that, your credit score may take a hit. 

Make timely payments

Timely payments on your credit card can save you serious money on interest charges and penalties. Also, not delaying payments will help you boost your business's credit score and establish a good credit history.

If you find yourself struggling for any reason, you can pay off your credit card debts using a debt relief option like debt consolidation.

Familiarize yourself with the reward programs

Earning rewards feels excellent, but you should also know how and when to utilize them. 

Some cards, like cashback cards, give you what they say they will right away. However, others, offering hotel and airline rewards, have a threshold requirement you must achieve before using them. When you earn points, they can expire if you don't use them within the specified window. Some cards also have deals with certain businesses that give their cardholders discounts.

So, if you want to use the rewards you reap, you must familiarize yourself with the reward programs and act promptly.

Deduct your credit card's extra expense from your taxes

You can deduct any credit card interest, annual fees, and late charges from your business's taxes as long as the purchases are business-related. So make sure you do that.

Final thoughts

Credit cards are a powerful funding option for your small business, but only if you choose the right card and use it correctly. However, some vendors only accept checks or bank transfers, which prevents you from taking advantage of the benefits of using your card. This is where Melio comes in. With Melio, you can pay those business bills using your card and enjoy all the advantages outlined above for a 2.9% fee.

As a small business owner, you have a huge responsibility: You are a guardian of the American dream. So, do your research, follow the tips mentioned in this article, and take your business to new heights. 

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Lyle Solomon is a Principal Attorney at the Oak View Law Group in California. He is a graduate of the University of the Pacific’s McGeorge School of Law in Sacramento.