How many business credit cards should startup founders have?

Benefits and drawbacks of having multiple business credit cards

Having multiple business credit cards can offer several benefits but also comes with its own set of risks. Here’s a breakdown to help you understand the pros and cons:

Benefits

The benefits of having multiple business credit cards are:

Improved cash flow

With more than one business credit card, you can spread out business expenses across multiple cards. This means you can better manage your cash flow, paying off balances on different billing cycles and avoiding high balances on a single card.

Building business credit

Using multiple business credit cards responsibly can help you build business credit. This is important if you plan to apply for business loans or a business line of credit later. Payments made on time and maintaining a healthy credit utilization ratio can improve your business credit score, which helps you qualify for better card offers in the future.

Access to more rewards and perks

With rewards credit cards, you can earn cash back, travel rewards, or points on purchases like office supplies, business travel, and other business needs. Also, different cards offer different rewards programs, so using multiple cards can maximize your rewards based on your spending habits.

For example, a card provider may offer extra points for business travel, while another gives higher cash back on office supplies or business expenses.

Higher credit limits

When you spread your purchases across multiple cards, you may also gain access to higher overall credit limits. This gives you more available credit, which can help in managing your business finances and covering larger expenses without maxing out a card.

Drawbacks

Apart from these benefits, some disadvantages of having multiple credit cards are:

Interest rates and fees

One major risk of having multiple business credit cards is the potential for high interest rates if you carry a balance. Many cards come with an annual fee, and if you don't pay off the balance in full each month, the interest charges can add up quickly. Watch out for foreign transaction fees and intro APR (introductory interest rates) that might change after a few months.

Damage to credit score

If you're not careful, having multiple cards can harm your credit history and credit score. Hard inquiries (when a credit card issuer checks your credit report to approve a new card) can temporarily lower your score. Additionally, high balances relative to your credit limit or late payments can negatively impact your credit report and credit score.

Managing multiple accounts

It can be tricky to keep track of multiple cards, especially for small business owners or entrepreneurs. Missing due dates or getting confused by the different billing cycles can lead to missed payments or late fees, which can hurt your credit score and damage your business credit.

Spending limitations

While you might have higher credit limits, the combined total credit can also tempt overspending. If you have multiple cards with different spending limits, managing how much you owe on each card becomes critical to avoid reaching your spending limits too quickly. A credit card issuer may reduce your credit limit if they notice poor management.

How to determine the right number of business credit cards

Choosing the right number of business credit cards for your startup depends on your spending habits, business needs, and ability to manage multiple accounts. It’s important to consider spending categories, your credit score, and the purpose of each card to avoid financial mismanagement.

Here’s how to determine the ideal number of business credit cards for your startup:

1. Assess your spending categories

Identify where your business spends the most. Different cards offer rewards for various categories, such as office supplies, business travel, advertising costs, and general business expenses. If your startup has varied spending patterns, it might make sense to have more than one card to maximize rewards and perks.

• Office supplies: Employee cards that offer high cash back or points on office supplies are a good choice.
• Business travel: If you travel frequently for work, a business credit card offering travel rewards might be best.
• Advertising costs: If you're investing heavily in ads (online or offline), a card with rewards for advertising expenses can help you earn back a portion of your spending.
• General expenses: A card company with broad rewards programs for all other business purchases might cover everyday needs.

2. Choose cards with specific benefits

Don’t just sign up for multiple cards; select ones that match your specific needs and business goals. For example, cards with 0% intro APR (introductory interest rates) could help during the early stages when your business needs cash flow flexibility. Make sure each card serves a purpose—whether for managing business expenses or maximizing rewards in specific areas.

3. Maintain your credit score

Managing multiple business credit cards requires discipline. To maintain a strong score by credit bureaus, make sure you:

• Pay on time: Timely payments are crucial. Late payments can harm your credit history and damage your credit score.
• Keep balances low: Avoid carrying high balances. The credit utilization ratio (the amount you owe vs. your credit limit) should ideally stay below 30% across all cards.
• Monitor your credit report: Regularly check your credit report for accuracy. This will help you keep track of how your actions are affecting your credit history and credit score.
• Avoid applying for too many cards: Each credit card application results in a hard inquiry on your credit report, which can temporarily lower your credit score. Be mindful of this when applying for new credit cards.

4. Consider your credit history and available credit

If you're new to credit or are still building your business credit, having one or two cards may be good to keep things simple while you establish a good payment history. As your business grows and your credit limits increase, you can consider adding more cards if needed for specific purposes.

5. How many are too many?

While there’s no set number, the right amount depends on your ability to manage multiple cards effectively. Generally, having 2-3 business credit cards is a good starting point for most startups. This allows you to cover a variety of spending categories without complicating your financial management.

Alternatives to business credit cards

While business credit cards can be a great tool for managing business finances, there are other financing options available. Each has its own advantages and considerations depending on your needs.

Business line of credit

A business line of credit offers flexibility similar to a credit card, but usually with a higher credit limit. You can borrow funds up to a set limit, and you only pay interest on the amount you borrow. This option is ideal for businesses that need consistent access to working capital and want to avoid the higher interest rates often associated with business credit cards.

Pros:

• Flexible borrowing
• Only pay interest on the amount used
• Often lower interest rates than credit cards

Cons:

• Can require a strong business credit score to qualify
• May come with fees for unused credit

Business loans

Business loans can be a good option if your startup requires a lump sum of money for specific purposes, like purchasing equipment or expanding operations. Lenders offer various types of loans with fixed interest rates and repayment terms, which can help you plan long-term.

Pros:

• Larger amounts of funding available
• Predictable repayment schedule

Cons:

• May require collateral
• Lengthy application process
• Fixed repayment terms, regardless of your financial situation

Invoice financing

Invoice financing (or factoring) allows you to get an advance on unpaid invoices. If your business has outstanding invoices, you can use this method to get cash upfront instead of waiting for customers to pay.

Pros:

• Fast access to cash
• No need for a business credit score if invoices are strong

Cons:

• Fees can be high, especially for late invoices
• Involves handing over control of receivables

Merchant cash advances

A merchant cash advance (MCA) provides funds in exchange for a portion of your future sales, typically a fixed percentage of daily credit card transactions. This option is quick, but it can be expensive due to high interest rates and daily repayments.

Pros:

• Fast access to funds
• No collateral required

Cons:

• High interest rates
• Daily repayments can strain cash flow

Crowdfunding

Crowdfunding involves raising capital from multiple small investors, typically through an online platform. This option is suitable for businesses with a compelling story or product, allowing you to tap into the support of individuals who believe in your idea.

Pros:

• Can raise significant funds without giving up equity
• Engages a community of supporters

Cons:

• Time-consuming campaign process
• Success is not guaranteed

Wrap up

Using multiple business credit cards can provide significant benefits, such as increased flexibility, access to rewards programs, and improved cash flow. However, it's important to manage them responsibly to avoid high interest rates, damage to your credit score, or excessive debt. So, cardholders should take a moment to assess your current credit card usage and make sure it aligns with your business needs.

As you weigh which cards to use, consider the Rho corporate card. It’s designed to accelerate month-end close and set customizable pre-spend rules. In other words, you can make it fit your own needs. It offers up to 2% cash back¹ on all purchases with Rho Platinum and has a scalable credit limit.

‍Apply now to start enjoying the benefits of Rho Corporate Credit Cards today.