Table of Contents
- What is a balance transfer business credit card?
- How do balance transfer business credit cards work?
- What is the best balance transfer business credit card?
- What are the advantages and disadvantages of business balance transfer credit cards?
- How to apply for a balance transfer business credit card
- Will a balance transfer affect my business credit score?
There are many reasons why you might want to use a business credit card – perhaps to spread the cost of large purchases or take some of the strain off your cash flow.
But just like with a personal credit card, if you don’t pay the balance on your business credit card in full at the end of your statement period, you’ll be charged interest on what you still owe.
Since business credit cards tend to have higher interest rates than business loans, they’re generally less suited to long-term borrowing. If you have a large balance, the cost of your interest payments may even make it harder to clear your debt.
Read on to learn how a balance transfer business credit card could help your business avoid expensive interest payments and help you pay down your credit card balance faster.
What is a balance transfer business credit card?
Business balance transfer credit cards are designed to make it easier to pay off your outstanding balance faster on your other credit card(s).
A balance transfer allows you to move your balance from one card to another, with a view to reducing your monthly interest payments.
It’s standard for business balance transfer credit cards to offer a lower interest rate – or even 0% APR – throughout an introductory period, so long as you make your minimum repayment each month.
If you are unable to do this, you may lose the promotional offer and end up paying a higher interest rate than on your original card.
If you transfer your balance from a card with a higher interest rate to a balance transfer card with an introductory low-APR period, it may give your business more time and make it easier to repay the balance.
With balance transfer credit cards, you should aim to clear your entire balance before the introductory period ends. You should also make sure you always make your minimum monthly payments and stay within your credit limit.
At the end of the introductory period, you’ll have to start paying interest (or a higher interest rate) on your outstanding balance. If this interest rate is higher than the rate you were paying before you transferred, this could result in more expensive borrowing in the long run.
Also bear in mind that the promotional interest rate is likely to only apply to the existing balance that you transferred to the card. If you spend money on your new balance transfer card or make a withdrawal, you’re likely to be charged a higher interest rate.
How do balance transfer business credit cards work?
As you spend with a business credit card – paying invoices or business travel expenses, for example – the amount you owe (also known as your balance) increases.
At the end of each statement period, you have to make at least a minimum payment towards your balance.
If you pay off your balance in full each month, you won’t be charged any interest, but if you don’t pay off your monthly balance in full and on time, interest will be charged on what you still owe.
If you only make the minimum repayment – and especially if your business credit card has a high interest rate – it can then become harder to clear your balance, since you’re not only repaying what you borrowed but you’re also repaying interest on top of that.
Here’s where balance transfer credit cards come in.
Used correctly and responsibly, balance transfer cards can allow you to shift your outstanding balance to a card with a lower interest rate – ideally with a period in which you won’t have to pay any interest at all on the amount you transferred.
You’ll have to apply for a balance transfer credit card, which could require you to have a strong business credit score.
But if you’re approved, you can then request a balance transfer from your old business credit card(s) to your new business balance transfer card, so long as the balance is within your new card’s credit limit.
Your new card provider will pay off the balance of your old card and transfer that same balance to your new card – plus a balance transfer fee of typically 3% to 5% of the total balance.
When shopping around for balance transfer business credit cards, remember to take the transfer fee into consideration – as well as the length of any introductory period and the APR you’ll have to pay if you still have an outstanding balance when that introductory period ends. Remember that the APR and the cost of transfer fees may be higher for balance transfer business credit cards than for this type of consumer credit card.
What is the best balance transfer business credit card?
The best balance transfer business credit card is likely to depend on your specific business circumstances. Start by looking at the rate of interest you’ll have to pay during the introductory period.
You might also want to consider a card with a longer introductory period, as this will give your business more time to clear your balance before a higher interest rate kicks in.
You should also consider the interest rate at the end of this period. If the new interest rate is higher than your old one, and you haven’t managed to clear your balance in time, you could end up paying more in the long run.
You should also factor in the balance transfer fee associated with the card.
While not all balance transfer cards charge fees, they will usually be a small percentage of the total amount you want to transfer. Any fees will be added to your total balance on your new card as soon as the transfer is complete.
Because any fees are added to your balance, this means that you could end up paying interest on the transfer fees as well as the balance you’re transferring. This is something to bear in mind when weighing up the pros and cons of a business balance transfer credit card.
As an example of how transfer fees work, if you want to transfer a balance of £1,500, and the balance transfer fee is 3%, you’ll pay £45 in balance transfer fees.
These fees will be added to your balance after the transfer, so your new card balance will be £1,545.
If your card does not come with an interest-free introductory period, or if that period ends before you’ve paid off your balance, you’ll have to pay interest on your outstanding balance.
If you make multiple transfers, you’ll usually have to pay a separate fee on each transfer.
Since the transfer fee is normally a percentage of the balance being transferred, bear in mind that the larger your balance, the more you’ll pay in transfer fees.
What are the advantages and disadvantages of business balance transfer credit cards?
When you have debts in different places and you bring them together – through balance transfers, for example – this is called debt consolidation.
An advantage of consolidating your business credit card debts with balance transfers is that you could save money on interest payments. It may also be easier to keep track of what you owe if it’s all in one place.
The disadvantages of consolidating your business debts with a balance transfer include the cost of transfer fees and the potentially higher interest rate you could face at the end of any introductory period. Make sure you always check and understand any fees and the APR associated with any credit card before applying.
In this case, try to work out whether you’ll still have a lower cost of borrowing in the long run after factoring in transfer fees, the length and APR of the introductory period, and the subsequent interest rate on your new balance transfer credit card.
Bear in mind that you may need a good credit score to be approved for a balance transfer card. Even then, you will be limited in how much money you can transfer.
You also normally won’t be able to apply for a balance transfer card from any of your existing credit card providers.
How to apply for a balance transfer business credit card
Start by researching balance transfer business credit cards, paying particular attention to the rates and durations of any introductory, low-APR offers. Also consider balance transfer fees as well as transfer and credit limits.
When you’ve decided on a balance transfer card, you can typically apply directly to the provider online or over the phone. You’ll probably be asked for some financial information as well as details about you and your business.
If you are eligible to apply and if your business credit score is good enough – and assuming you don’t already have a credit card with that provider – you may be approved for a balance transfer card.
You can then get in touch with the provider of your new card to request a transfer from an existing credit card.
Will a balance transfer affect my business credit score?
Whenever you apply for a credit card or charge card for your business, the card or finance provider is likely to carry out what’s called a “hard” search on your credit report.
These “hard” searches can temporarily harm your credit score so try to avoid applying for multiple lines of credit over a short time span.
If you make a balance transfer and then cancel your old business credit card, this may also result in a dip in your business credit score. This is because it generally helps your credit score to have old accounts open in your name.
Be warned that if you keep transferring credit balances from one card to another in an attempt to make the most of various promotional offers or introductory periods, this could also harm your credit score.
This is the sort of behavior which could make you or your business look like a risky customer, so lenders may become less inclined to lend to you – even if you always make your minimum payments each month.
That said, using a balance transfer business credit card responsibly should be good for your business credit score in the long run – especially if the transfer eventually helps you clear your balance.
Clearing your outstanding balance and always making payments on time will have a positive impact on your business credit score, signalling to lenders that your business is a reliable borrower.
Paying down an outstanding balance will also improve your credit utilisation ratio. This is a measure of how much credit you currently have in relation to your credit limit.
As a general rule, having a low credit utlisation ratio is good for your credit score.
Having a good business credit score could make it easier for your business to access finance, such as business loans, on favourable terms down the road.
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