Planning to get a business credit card for your therapy practice?
With so many cards available to small business owners, the number of choices available may feel overwhelming.
Here’s what you need to know to get started.
Business credit cards vs. personal credit cards
Business credit cards work the same way personal credit cards do. The main difference is that business credit cards are marketed to business owners.
Meaning, you can expect the business cards to entice you with offers specifically geared towards business owners. Think cash back on office supplies and utilities, or savings on business travel.
Business credit cards vs. corporate cards
A corporate credit card is issued to a C corporation. As a distinct legal entity, the corporation is liable for all debt.
If your therapy practice isn’t a C corporation—almost none of them are—you’ll be applying for a business credit card. In that case, you’re personally liable for all debt.
Business credit cards vs. charge cards
Besides applying for a credit card for your therapy practice, you have the option of applying for a charge card.
A charge card is harder to qualify for, but it may offer you more flexibility, depending on your spending habits.
When you have a charge card for your therapy practice, there is no monthly limit on how much you can spend. However, you must pay the full balance of the card every month, or risk paying steep penalties.
For almost all therapy practices, a credit card is the most sensible option. Charge cards are more appropriate for businesses making many purchases per month.
The benefits of getting a credit card for your therapy practice
If you have enough cash on hand to cover monthly expenses, what’s the point of getting a credit card for your therapy practice?
Used wisely, a business credit card can:
- Rack up reward points and cash back. By using your credit card for specific qualifying purchases, you may be able to earn cash back, or points (like travel miles) that go towards other business expenses (like business trips).
- Cover cash flow gaps. Particularly if your therapy practice is young, it can be difficult planning cash flow. For instance, if you’re stuck waiting on payments from clients, but need to cover an expense like rent or utilities ASAP, your credit card can bridge the gap until you get paid.
- Build your credit. Use your credit card often, pay it on time, and watch your credit score improve. It’s a slow process, and may not seem important now. But later on it could be the key difference qualifying you for a bank loan or line of credit to help your practice expand.
- Take advantage of free insurance. The terms of your credit card may provide insurance against theft or damage on large purchases like business computers or office furniture.
4 questions to ask when choosing a credit card for your therapy practice
Before beginning the search for your new business credit card, take the time to sit down and ask yourself the following questions.
What are the biggest recurring expenses you can pay for with your card?
Using your credit and repaying it on time helps to build up your credit credit score, and earn you rewards if you choose a business credit card with a points program. Identify large, recurring expenses you can cover with your card, while being able to pay off the debt in a timely manner.
- Vehicle insurance, if you claim a portion of your vehicle costs as a tax deduction
- Fees for directories like Psychology Today
- Monthly phone and internet bills
- Business license renewals
Remember: this strategy only benefits you if you pay off the debt. Create a schedule for paying off recurring expenses each month, and keep a close eye on your cash flow.
What non-recurring expenses will you use the card for?
Non-recurring expenses don’t happen on a set schedule. They may still happen frequently, however. Knowing which expenses you most often incur, you may be able to get a card that rewards you for your spending.
For instance, if you frequently travel overnight in order to facilitate workshops, you may want to choose a card that rewards spending at hotels and restaurants. Or, if you’re planning to buy new office furnishings in the near future, some cards offer rewards for money spent at office supply stores.
Are you prepared to pay an annual fee?
With so many business credit cards having no annual fees, it’s tempting to disqualify, out of hand, any card that does charge a fee.
That may not be a good idea, though. Cards with annual fees often come with higher rewards rates or bigger signup bonuses than ones that don’t. Do some math, and look at how you plan to use the card, to determine whether a fee will make it worthwhile.
In the next year or so, will you be able to take advantage of introductory offers?
Introductory offers like 0% annual percentage rate (APR) typically last 12 months. Bonus rewards points often follow the same pattern, but may be staggered.
It’s a good idea to take a close look at the fine print when considering rewards programs—their rules are rarely simple or straightforward.
Naturally, if you don’t spend much in your first year having a business credit card, a 0% APR introductory offer won’t do you much good.
Before signing up for a card with a tempting introductory offer, look at the 12 months ahead, and figure out just how much you’re liable to earn in points—or save in interest payments—during that period.
Maybe you’re furnishing a new office or upgrading your work computer within the next year. In that case, you may be perfectly set up to take advantage of introductory offers.
Or you may have existing debt that you plan to consolidate with your new card. So long as the introductory offer applies to balance transfers, that could help you save money.
But if you aren’t planning any major spending, you can cross introductory offers off your list of priorities, and focus on cards that can benefit you in other ways.
How to use your therapy practice credit card
Your business credit card should always be a benefit to your therapy practice, and not something that puts your financial health at risk.
To ensure that’s always the case:
- Read the fine print. Make sure you fully understand the terms and conditions before signing up for a new credit card—no matter how appealing the perks may seem.
- Pay your balance. To reiterate: Pay your balance. This cannot be stressed enough. Heaping up a runaway credit card balance is one of the easiest ways to sabotage your business finances.
All business credit card debt is a liability. But don’t worry—that isn’t as bad as it sounds. Liabilities are a part of every business’s balance sheet. Our guide to balance sheets for your therapy practice breaks it down.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.