In case you don’t have time or inclination to keep up with the latest announcements from the Federal Reserve (most folks don’t), they recently raised rates for the first time in three years and predicted a whopping six more rate hikes in the year ahead!
Most personal finance sites cover how such rate hikes can significantly add to your credit card debt load over time, and a few more comprehensive sites even offer consumers tips on how to respond to rate hikes in the best way possible. In fact, my colleague did just this in her article, The Federal Reserve raised interest rates. Now what?
However, the angle of this article is different (and dare I say unique) as it deals with using balance transfer credit card offers to pay down small business debt in what can be a quick and very effective manner.
Given that small business owners are finding it increasingly difficult to access credit and loans, according to a recent article in Yahoo Finance, and that interest rate increases loom on the horizon, I urge you to consider the following “easy to follow” insider tips on how to most effectively take advantage of small biz credit card transfer offers.
As we approach National Small Business Week in May, I asked Gerri Detweiler, credit and small business expert and coauthor of Finance Your Own Business: Get on the Financing Fast Track, to share some insider tips she has gleaned from tracking small business credit issues for 20-plus years.
Are small business balance transfer offers easy to get?
Small business balance transfers are quick and easy to apply for compared to other forms of business credit.
Most forms of business credit, particularly more traditional forms such as bank loans, can be a major pain to apply for. I remember Scott Bonge, the founder of MyPerfectGoatee.com and a good friend of mine, a year or so back complaining about all the underwriting requirements (“bank speak” for the paperwork to prove you’re credit worthy) of the bank he was dealing with for a line of credit to grow his business.
Small business transfer applications are much more streamlined. You can literally apply online in a matter of minutes, and you may get approved very quickly as opposed to a typically much slower approval process with traditional business loans.
According to Detweiler, you may also get card offers directly from your current card issuers. Log into your small business credit card account or call them to see if any offers are available.
How do small business balance transfer offers work?
You don’t need to be a finance guru! Small biz transfer offers work similarly to personal (consumer) transfer offers.
If you have ever taken advantage of a 0% or low intro rate offer, then transferring a balance with a business card should be a breeze.
As Detweiler points out, the process is similar. “Generally balance transfers allow you to transfer funds to another credit card to pay off debt.”
The goal is to move debt from a card with a high interest rate to a card with a lower rate – or even a 0% rate for a period of time – so you can work on paying off that debt without accruing high interest charges.
As is the case with personal offers, a balance transfer fee, typically around 3% of the transfer amount, will apply so take that into consideration. Fees and offer lengths vary; shop around to find the option that best meets your needs. For example, the Arvest Bank small business card doesn’t charge transfer fees, but the 0% intro period is just six billing cycles from account opening (before a 12.49% - 16.49% rate kicks in). On the other hand, the CardNamediscontinued charges a balance transfer fee (BalanceTransferFees), but for a limited time offers you an intro 0% period of 18 billing cycles on balance transfers and purchases (then, RegAPR; See Rates and Fees).
Should you transfer a balance without a 0% APR offer?
Can’t find a 0% offer? Don’t give up! In some cases, it can make sense to do a transfer even if the transfer rate is much higher than 0%.
As strange as it may sound, it may make sense to take advantage of a small balance transfer offer even if the rate seems relatively high, even rates in the mid to upper teens!
Why? Well, business loan rates aren’t generally capped (by the government). In fact, some types of financing may have APRs of 30%-75% or even more! In that case, a credit card transfer rate at 19.8% could still save you considerable money.
The bottom line, Detweiler points out, is that a transfer will save you money when the transfer rate is better (lower!) than your current card rate or the rate you can get on other types of small business financing.
Can you transfer from a business card to a personal credit card?
Can’t find a good 0% small business transfer offer? Consider transferring a business card debt to a personal (non-business) card.
First of all, approach this option with caution and consult your accountant if you aren’t sure of the potential tax implications.
Having said that, it is possible to take advantage of a personal credit card transfer offer for your business card debt.
The upside is that there are many more personal or regular consumer offers available than there are business offers and the offers tend to be more attractive. For example, the personal offers tend to last longer – we have multiple reviews of personal balance transfer offers that feature long-term introductory rates of 15 months and more.
If you can’t directly transfer your balance from one card to another, you can look into using a balance transfer check. Many banks provide balance transfer checks you can write to a person or business – even your own business – to complete a transfer. Before doing that, ensure the transaction will qualify as a balance transfer rather than a cash advance.
Can I get cash from a balance transfer?
Don’t have card debt to pay off? Consider using a balance transfer to fund other purchases.
In the past, I’ve read about consumers taking advantage of a fairly rare process involving transferring funds from their card directly to their bank account. I can’t find any current information on whether this still works, but Detweiler says it’s worth researching.
“Balance transfer offers may allow you to deposit funds directly into your bank account,” she says. “You can then use the funds to pay other debts or for working capital.”
Be careful. Many issuers consider this approach to be a cash advance, which typically comes with a higher cash advance APR, not to mention higher fees. Moreover, cash advances usually start charging interest on the day of the advance (i.e. there is no grace period).
If you’re truly looking for a way to get cash from a 0% APR balance transfer offer, you can consider transferring more than you need to your new card. For instance, if you have a $5,000 balance on one card, consider requesting that $7,500 be transferred to another card with a 0% intro offer. From there, you’ll have an overpayment of $2,500 you can spend down on that first card or even request a refund from that card’s issuer so you have the $2,500 in cash. It’s not necessarily an elegant solution, nor is it ideal for people who are chronic over-spenders, but you can consider it.
I sincerely hope these tips are helpful to you and would love your feedback on how you’ve been able to leverage transfer offers to your advantage. Who knows, I may include a tip from you in a future article!
Best wishes in managing your business debt…