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Great rewards program? That business credit card might still not be right for you

By , CardRatings contributor
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There's a reason why so many entrepreneurs apply for credit cards designed specifically for Man wearing suit at airportbusiness: These small business credit card offers often come with lucrative rewards programs. And because many business owners use their credit cards to buy a steady stream of costly equipment and supplies, they can quickly rack up the points they need to qualify for airline tickets or large cash-back bonuses.

But not all business rewards cards are equal. And some, no matter how strong their points programs are, might not be the best card for you.

The key to choosing the right business rewards card? It remains the same as choosing the right personal credit card: You need to consider a card's interest rate and annual fees. You need, too, to look closely at the penalties a card might levy against you if you miss a payment or send a payment in late.

"There are many business rewards cards that have great perks," says Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network. "But sometimes these perks are offset by annual fees. Others might come with high interest rates. You need to look at the whole card, and not just the rewards program, when you're looking for the right card for your business."

Points, points, points

Business rewards cards come in several categories: Some allow you to build points that you can turn into airline miles that you can eventually use to cover the cost of flights. Others refund you a certain amount of cash based on your purchases during the month. Still others allow you to redeem points for hotel stays or merchandise.

Many cards come with tiered rewards programs. You might earn five rewards points for every dollar you charge for office supplies but just three points for every dollar you spend on gas or restaurant meals.

It's important, then, for business owners to consider their own specific businesses when choosing a rewards card.

"There is no one right business rewards card for every customer," says Beverly Harzog, an Atlanta-based credit-card expert and author of the book "Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made." "One card might be perfect for one business owner but the wrong choice for another."

Entrepreneurs need to consider the type of purchases they tend to charge each month. If they use their credit cards to purchase a steady stream of office supplies each month, it makes sense to sign up for a business rewards card that provides more points for every dollar spent on these supplies. Those entrepreneurs who spend more time entertaining clients than buying supplies might do better with a business rewards card that provides more points for dollars spent on hotel stays and restaurant meals.

Entrepreneurs should also look at their own needs when debating the merits of business rewards cards. Some owners might fly across the country on a regular basis. A card that allows entrepreneurs to turn points into reward flights might make sense. Others might earn income sporadically from their businesses. A rewards card that offers a robust cash-back program might help these owners with monthly cash-flow issues.

"You want to have a rewards program that matches up with the type of business you have," says Melinda Opperman, senior vice president of community outreach and industry relations with Springboard Nonprofit Consumer Credit Management, based in Riverside, California. "When you are searching for a business credit card, look for rewards and incentives that are tailored to your business needs. Travel rewards might not make a lot of sense for a home-based business if you don't travel a lot. Find a card that has the features that pertain to your business and your needs."

The fine print

Many of the protections provided on consumer credit cards from the Credit CARD Act of 2009 do not apply to business credit cards. This means that the interest rates connected to business credit cards can rise quickly. At the same time, late or over-the-limit fees on business credit cards are not capped.

The act does state, though, that the issuers of business credit cards do have to inform their customers in writing before they raise their interest rates. This means that it's important for entrepreneurs to pay attention. They can't let a robust rewards program distract them from the fact that their interest rate will soon skyrocket, especially if they plan on carrying a balance on their business card.

Those business owners who struggle to send in their payments on time -- either because of cash-flow or organizational issues -- need to be especially careful. Late payments can bring big penalties and send interest rates to new heights. Even if a card has a generous rewards program, then, owners with a history of late payments would be better off searching for an alternative card with less severe late-payment penalties.

"You need to plan, especially if you will carry a balance on that card," Opperman says. "This means that business cards should be treated with much more care than you treat personal credit cards. They don't come with as much protection."

Business owners might be tempted by generous rewards programs to use their business credit cards to charge personal purchases. This, too, is a mistake, Opperman said. Business owners should use personal credit cards to make personal charges and business cards to charge office supplies, equipment and other company expenses.

If they don't? If someone sues a business owner, that owner's personal assets could be subject to legal action.

"I've seen far too many business owners make this mistake," says Gallegos. "It becomes all too easy for them to buy some groceries or charge a non-business dinner to their card. And if the card comes with especially attractive rewards or terms, it's even easier. But it can lead to some big problems in the future. It's always best to keep personal charges and business charges separate."

The bottom line? Today's small business credit cards often come with a wealth of lucrative rewards programs. But the rewards card that is perfect for your competitor might not work as well for you. And if your card's other terms --  interest rate, late fees, grace periods and over-the-limit fees -- are especially onerous, not even the most generous of rewards programs can make a card a smart choice for your business.

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