Are you a small business owner juggling credits card debts? You’re not alone. That can create pressure, given how high interest rates are. A balance transfer business credit card may be the solution.
It allows you to transfer debt from one or more cards to a new one. In many cases the new card has a lower interest rate. But is it a good fit for you?
Whether a balance transfer is wise depends on your business’s circumstances. You require financial discipline as well. So, let’s see if it’s the right option for you.
What Are Business Credit Card Balance Transfers?
A balance transfer transfers your credit card debt. You shuffle it from one card to another, except this is for your business. It is intended for businesses to better manage their debt.
It is akin to transferring a credit card balance. The major difference is that the card is for your business costs. Also, the approval will be based upon your business credit history.
How a Business Balance Transfer Works
The first step is to apply for a new business credit card. Seek one with a balance transfer offer. On approval, apply for transfer. The card issuer will then pay down your old card balances.
This process generally happens over a few days or weeks. You are still responsible to make payments during that time. This protects you from late payment penalties.
Be sure you know your credit limit before you initiate a transfer. You can fund the full amount transfer so you want to be sure you can do that.
They are also known as balance transfer credit cards.
And lower interest rates are a major plus. Most balance transfer cards come with a 0% intro APR. Doing this can save your business a lot of interest expenses.
It is also easier to manage debt. You have one instead of making multiple payments. This may help you pay it off faster, and provide you with peace of mind.
And what if you could consolidate debt from a number of cards? Transfer it to one with a 0% intro APR. You can potentially save hundreds or thousands of dollars.
Potential Risks and Downsides
Balance transfer fees are important to know about. They are typically a percentage of the amount transferred. It typically sits around 3% to 5%.
Your credit score may be at jeopardy as well. (In some cases, opening an entirely new account can negatively impact your average account age.) This could take a slight toll on your score for a month or two. However, paying down balances may benefit your credit utilization.
Overspending is also a risk. You may be ready to start racking up new debt on the old cards. This will beat the purpose of the balance transfer.
Assessing Your Business’s Financial Health
Before you charge into a balance transfer, conduct a close examination of your business’s finances. It is a major decision, so prepare well.
Step 1: Assess Your Current Debt Load
Tip: Add up all your business credit card debt. Present each card and the interest rate. This will tell you how much you’re paying in interest.
Use a spreadsheet to create a debt matrix Make sure you look at the cards with the highest rates. These are the ones to slam with a balance transfer.
Analyzing Your Cash Flow
Can your business make payments on the new card? See whether you have enough money coming in to afford it. Forecast your income and expenses for one year. That will allow to gauge whether you can afford the debt.
Credit Score Considerations
A balance transfer can affect your credit score. It may help boost your credit utilization ratio. But when you open a new account, it could reduce your average account age.
Monitor your business and personal credit scores. Most business credit cards report to personal credit bureaus. Ensure that you are paying on time.
How to Choose the Right Business Credit Card for Balance Transfers
The trick is to choose the right card. Find the one that suits your business needs.
Interest Rates and Fees Comparison
Look for 0% introductory APR deals. Look at balance transfer fees for different cards. Read the fine print. Understand the APR after the introductory period is over.
Assessing Rewards Programs and Other Benefits
Points for cash back and travel rewards are nice. But make low interest rates and fees your top priority. These save you the most in the long run.
Application Process and Approval Requirements
The application process is like any credit card. They will consider your credit score, revenue and time in business. Be ready to provide financial statements.
How to Take Advantage of a Balance Transfer
Here’s how to do a balance transfer smartly.
Creating a Repayment Plan
Set a budget and follow a repayment plan. Pay off the balance before the intro APR ends. Automate payments to avoid late fees.
Avoiding New Debt
Avoid incurring any more debt on the transferred card. Concentrate on reducing the current balance. Avoid spending the available credit.
Monitoring Your Credit Score
Stay on top of your credit score. That way, you can monitor the impact of the balance transfer. Identify changes and address them to act rapidly.
Business Credit Card Balance Transfer Alternatives
Other options are available.
Business Loans
Business loans usually have lower interest rates. But they might need collateral or a personal guarantee.
Debt Consolidation
Debt consolidation takes all your debts and combines (or consolidates) them into one loan. This can make payments easier and reduce your interest rate.
Negotiating with Creditors
Speak to your existing creditors. They also may be willing to reduce your interest rate or set up a payment plan. It never hurts to ask.
Conclusion
A low bm from a business credit card can assist you to be efficient. It assists with debt management for your company. This isn’t a one-size-fits-all remedy. Consider the advantages and disadvantages before you choose. Planning helps you to make the right choice.
