Practice Management Small Business

When Is a Second Business Credit Card the Right Decision?

Written by Jared Hecht

So your client has — or you have — a business credit card and it’s working nicely. The finances of the firm are in order and those lucrative rewards and points are saving money on regular business spending. If that one card is no longer meeting their (or your) needs, however, maybe it’s time to consider getting a second business credit card. Here’s a guide for figuring out whether you, or a client looking to you as most trusted advisor, are ready to take that step, and — if so — how to choose the right one:

Reasons Not to Get a Second Business Credit Card

First, let’s talk about why you or your client might not want to get a second business credit card. The first step in this assessment is to take an objective look at the company’s finances and determine if you can really afford a second card.

Here are a few scenarios in which you or a client looking to you for advice should hold off on getting a second business credit card:

It Is a Challenge Paying the One Business Credit Card Bill

In this case, getting another card can be dangerous. Wait for now. In the meantime, take steps to pay down the balance as much as possible. When it becomes possible to easily pay the monthly bill on time, you’ll be in better shape to open up another credit line.

Your Overall Debt or That of Your Client Is too High

Do what lenders do and look at your debt service coverage ratio (DSCR). This is a calculation of the amount of cash you have available to service your debts. A DCSR of 1.0 or higher shows you or the client have enough cash flow to service your debt obligations. If it’s lower than that, it might be a good idea to focus on paying off existing debt before investing in another credit card. An easy way to calculate your DSCR is to divide your total annual net operating income by total annual debt service.

A Much Cheaper Financing Option Is Available

For example, if your client needs cash to buy kitchen equipment for their restaurant, equipment financing offers rates as low as 8%, making it a potentially much more affordable way to get funds. Of course, some credit cards have 0% intro APRs, but if you can’t get one of those, do compare rates and terms between credit cards and other loan options. There may be better choices.

You or Your Client Just Needs a Higher Credit Limit

First, ask your current credit card company for a higher limit. Chances are they’ll be willing, if payments have been made on time and the balance has been kept low. If not, then consider a second card.

When Your Client Should Get a Second Business Credit Card

Once you’ve determined that the business is in good enough financial shape to take on a second credit card, consider why your client or yourself wants to get one. There should be a clear purpose for the card. Otherwise, the client may start using it carelessly or end up missing out on a better card for their business.

Here are some reasons to get a second business credit card:

The Option to Earn Different Types of Rewards

Business credit cards are a great way to maximize value from company expenditures. However, different cards offer different rewards.

For instance, if you have a card that earns travel miles quickly, you may want to add a card focused on cash back at office supply stores, gas stations, and other places where you spend money. This way, you or the client can get rewards for a greater portion of company expenses.

To Build Credit

While using one business credit card responsibly can prove you are a solid borrower and improve your credit, showing you’re able to use two cards responsibly will boost that credit even more.

Just be aware that not every credit card company submits business credit card activity to business credit bureaus, like Dun & Bradstreet. Most do, but it’s worth making sure if you or the client hope to improve your score.

In Order to Graduate to a Better Card

Perhaps your client started with a secured business credit card because they had poor or no credit. Now, after using the card successfully for a period of time, they want to apply for a better card—one that brings solid cash back, rewards, miles, etc.

Consider what your client qualifies for first. Apply for the card that matches the needs of the business, whether that be cash back on all purchases, a sign-up bonus for lots of flight miles, or annual ridesharing credits.

To Consolidate Debt on the New Card

If your client has high-interest debt on their first card or another business loan (some card companies accept transfers from loans), they could save on interest fees by transferring the balance to a credit card with a 0% introductory APR and/or balance transfer promotion.

Just be cautious: You don’t want your client to add more debt on the card during the introductory 0% APR period. The point is to give them time to pay off the debt without incurring interest charges. There are low-interest business credit cards worth looking at as well if you think your client might be repaying that debt for much longer than the introductory period.

To Gain an Affordable Financing Option

The majority of credit cards have high-interest rates. However, as noted above, there are numerous business credit cards out there with an introductory 0% intro APR. The promotional period usually lasts 12 to 18 months.

What these cards provide is the chance to fund the business without having to pay to borrow. For example, you or your client could use the card to do everything from buy equipment and inventory to pay for marketing campaigns. The business can be expanded without paying financing charges—as long as the balance is paid in full before the 0% intro APR period is up.

Making the Right Decision

Help your client to assess their company’s situation honestly. If now isn’t the best time to add a second business credit card, advise them to wait to apply and suggest steps they can to improve their financial situation in the meantime. It’s better than falling into a debt trap.

If your client is ready to add a card, help them think about how their company can benefit from a second business credit card. Do the research and compare options — and they’ll get the card that’s best for their business. They will thank you for steering them in the right direction.


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About the author

Jared Hecht

Jared Hecht is the CEO of Fundera, an online marketplace for small business loans. Prior to Fundera, Jared co-founded GroupMe, a group messaging service that was acquired by Skype in August 2011, and subsequently acquired by Microsoft in October 2011. Jared currently serves on the Advisory Board of the Columbia University Entrepreneurship Organization and is an investor and advisor to startups such as Codecademy, SmartThings, and TransferWise.

1 Comment

  • Awesome article here! Perfect timing too, I was just considering getting a second card for my business and glad I came across this! Thanks so much for the valid points on how to go about decided to get another card.

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