What Small Business Owners Should Know about 0% APR Credit Card Offers

What Small Business Owners Should Know about 0% APR Credit Card Offers

What Small Business Owners Should Know about 0% APR Credit Card Offers

Given the opportunity to borrow money with no interest to start or grow their business, many small business owners would jump at the chance. 

By using business credit cards with 0% introductory APRs, many small business owners are able to access interest-free financing for a period of time. 

0% intro APR business credit cards offer small businesses flexible financing— and many times at little to no cost. Some cards also offer rewards like cash back or travel rewards. But there are serious pitfalls you’ll need to watch out for if you’re considering this small business financing option.

Learn how to leverage these offers successfully for your business. 

The Allure of 0% APR Credit Cards for Businesses

“No interest” is a powerful selling point for 0% intro APR credit cards. They are so popular that “approximately a quarter of credit card debt has an introductory promotional status, in most cases featuring a zero annual percentage rate (APR) for an introductory period of more than a year,” writes Lukasz A. Drozd and Michal Kowalik in a 2023 working paper for the Federal Reserve Bank of Philadelphia, The Conundrum of Zero APR: An Analytical Framework

For small business owners, a card that features a low interest rate and flexible line of credit can be very attractive. 

What Does 0% APR Mean?

A 0% intro APR credit card offer features a limited time period during which no interest is charged. After that time period ends, one of two things usually happen:

  1. If the balance has not been paid in full, interest may be charged, either retroactively to the initial date of the purchase (or balance transfer) at the interest rate that applies to that purchase, OR
  2. Any remaining balance will be subject to interest at the applicable interest rate until it is paid off. 

The interest rate charged when the intro rate expires is often quite high “16 percentage points on average,” write Drozd and Kowalik.

Some offers feature 0% for new purchases made and paid for during the promotional period, while others cover balances transferred from another credit card account. 

Why Do Companies Offer 0% Intro APRs?

Credit card issuers use 0% intro APRs to attract customers. Many of these offers are for 0% balance transfers. Drozd and Kowalik found that “nearly half of promotional debt originating from promotional transfers of balances accumulated on other credit cards.” And while consumers may have good intentions in paying off their balances before the interest rate increases, many aren’t able to do that. “A significant fraction of debt remains unpaid for months after the expiration,” and that means those cardholders will pay finance charges at the interest rate the issuer charges. 

Balance transfers also typically carry a balance transfer fee, which is charged at the time of the transfer. The average balance transfer fee charged is 3%.

The Psychology of 0% APR: Why We Fall for It

There is nothing wrong with taking advantage of a 0% intro APR credit card offer, provided you don’t fall into any of the common traps we discuss below. That said, it’s important to recognize that it can be tempting to take advantage of these offers even when they don’t make the best financial sense. 

Understand your biases and actively counter them using these strategies: 

The power of “free” in marketing

Free is a powerful tool in selling. In fact, you may use it to grow your own business, with freebies like “free shipping” or a “free gift with purchase.” It often gets a buyer off the fence. 

How to counter it: Would you borrow this money if you had to pay interest? 

Optimism bias

Overconfidence and optimism often lead individuals to make risky decisions in their personal finances, including the stock market or personal purchases. 

Entrepreneurship requires a certain degree of optimism and perhaps even overconfidence. You need the belief that you can succeed in your own venture, or do something better than established competitors. 

How to counter it: Talk with your business advisor or business mentor about how you plan to use the funds. Make sure you plan to spend the money on activities that will move your business forward. 

Naivete hyperbolic discounting 

In their paper, Drozd and Kowalik explain that “In this case the consumer erroneously believes that her future self will pay down debt faster than will be the case because the consumer is unaware that preferences will change.” In other words, you good intentions to pay off the debt quickly, but then something happens that derails that.

How to counter it: Budget for debt payments that will pay off the debt during the promotional period, and set up automatic payments so you ensure those payments are made on time. Resist additional spending that will increase the debt. 

Risks of Accepting a 0% Intro APR Offer

Understanding potential risks can help you avoid them. Here are the major risks to watch out for when taking advantage of one of these offers:

Risk 1: Credit Score Dips When Applying for New Cards

When you get a brand new credit card, most issuers will check your personal credit report and/or personal credit score. (Business credit checks aren’t common on most business credit cards, but some issuers may check business credit, especially for corporate cards.)

A hard inquiry can lower your credit score by a few points. The effect is usually temporary, and your credit score may rebound in a month or so, though there is no guarantee. 

It’s worth noting that Drozd and Kowalik found that “the average or median borrowers’ credit score goes up during the promotional period.”

Risk 2: Increasing Balance During Zero-Interest Period

If you are taking advantage of a 0% intro APR on an existing credit card that reports to personal credit, your credit score may be affected by the new balance. Credit scoring models created by FICO or VantageScore may take into account “credit utilization” which compares balances to credit limits. 

Most business credit cards don’t report to the owner’s personal credit unless you don’t pay on time, so balances on those cards may not hurt your credit. Some business credit scores also take credit utilization into account.  

Risk 3: Carrying Higher Balances After Introductory Offer Expires

One of the biggest risks with these cards is that you aren’t able to pay off the balance before the introductory APR period ends. If that happens, your account will accrue  interest charges, often at a much higher interest rate. 

Risk 4: Trouble Making Monthly Payments After the Introductory APR Expires

If you take on debt you can’t repay, you may find yourself unable to make monthly payments on time. Most business credit cards report to business credit bureaus, and late payments will hurt your business credit scores. 

Plus, business credit cards aren’t covered by the same consumer protection laws as consumer cards. If you miss payment, your interest rate may go up right away to a “default rate” or “penalty rate” that can be even higher than the purchase APR. 

While most small business credit cards don’t report to personal credit, almost all issuers reserve the right to do so. 

Read: What to Do If You Can’t Pay Credit Card Debt

Again, while this is a risk, Drozd and Kowalik’s research found “the delinquency rate on promotional debt appears to be about average.”

Risk 5: Defaulting on Your Debt

If you can’t pay back your debt, you may default. That means you don’t pay the balance back. After a period of time, the unpaid balance is charged off by the card issuer and the balance is sent to collections, either internally or with an external collection agency. Eventually, you may be sued for the debt. 

Most business credit cards require a personal guarantee which means you are personally responsible for the balance, and the debt or collection account may appear on your personal credit report. 

How Small Business Owners Can Accept 0% Intro APR Offers and Minimize Risk

There are ways to minimize these risks and use these offers to your advantage. Here’s how:

1. Create a Repayment Plan Before Applying

Come up with a plan to repay the debt before the intro APR expires. For example, let’s say you borrow $2000 on a card with an intro APR that lasts for 12 billing cycles. $2000 divided by 12 is $167. Set up automatic payments for $167 a month and you’ll pay off the debt before the interest rate goes up. (Make sure the last payment is made before the intro rate expires.) 

Read the fine print to make sure you understand when the intro APR period expires, and the regular APR will apply. Often the lower rate will apply for a certain number of days or billing cycles from the account opening (rather than the date when you receive your card). 

2. Set Reminders for the End of the Introductory Period

Create a reminder to alert you when the intro period is due to end to make sure you don’t keep a balance after that time period expires. 

You’ll still want to monitor your statements carefully; if there is an annual fee assessed, or if you make additional purchases, you may need to pay more to pay off your balance, depending on how payments are applied to balances.  

3. Use 0% APR Strategically (e.g., for Specific Purchases or Investments)

Business owners often use lines of credit for working capital. That’s a broad term that can include many different types of business expenses. Your job is to make sure that the items you purchase at 0% move your business forward. Or, if you are transferring a balance, that you have enough cash flow to pay off your debt before your interest rate rises. 

The combination of the no-interest period and any additional perks, such as purchase protection or extended warranties, along with any rewards earned, can make these cards very appealing. 

4. Consider Alternative Financing Options (Lines of Credit, Term Loans)

Despite the low cost, a no interest rate may not be the best solution for certain situations. If you need to finance a very large purchase, a credit card may not offer a large enough line of credit. Also, for larger loan amounts, the payment amount required to pay it off in a relatively short period of time may be too high. 

Other small business financing options to consider:

A term loan offers a loan for a fixed amount of money for a fixed period of time. These can be offered by banks or online lenders, and include several types of SBA loans.

A line of credit may offer a larger credit limit than a single credit card, though that depends on the lender and borrower qualifications. 

For business owners with innovative products or services, crowdfunding can be an excellent option. Credit checks are rarely required. One crowdfunding platform, Kiva, offers 0% loans with no fee. 

Supplier credit allows business owners to buy items and pay for them later, often on net-30 payment terms. This is short-term financing, but it may be helpful to improve cash flow, and vendor credit is a popular way to establish business credit.

Microloans are smaller loans, often made by nonprofit lenders trying to spur economic development. Interest rates are often competitive and qualification requirements can be flexible.

Best Business Credit Cards with 0% Intro APRs

Following are four best credit cards for businesses that offer extremely competitive intro APRs. 

1. The Blue Business® Plus Credit Card from American Express

  • 0% on purchases for 12 months from date of account opening
  • $0 annual fee
  • Rewards points

American Express offers business owners a slew of business credit cards, many with top-rated rewards programs. The The Blue Business® Plus Credit Card from American Express offers new users an intro APR of 0% on purchases for 12 months from date of account opening (18.49% - 26.49% Variable after that) and there is $0 annual fee. The foreign transaction fee is None.

Earn 2X Membership Rewards® points on everyday business purchases such as office supplies or client dinners. 2X applies to the first $50,000 in purchases per year, 1 point per dollar thereafter.

If you don’t want to be pinned down by category limits and plan to spend less than or close to $50,000, this card can provide the financing window you need along with a solid rewards rate.

2. Capital One Spark Cash Select for Good Credit

With this card you’ll get a generous 0% on purchases for 12 months.  The ongoing rate is 21.24% - 29.24% (Variable). And the annual fee is $0.  While there is currently no welcome bonus, the ongoing rewards are solid: 1.5% Cash Back on every purchase and 5% Cash Back on hotels and rental cars booked through Capital One Travel.

3. Ink Business Cash® Credit Card

This Chase Ink card also has a good combination of benefits: 

  • 0% Intro APR on Purchases for 12 months.
  • Earn $900 bonus cash back after you spend $6,000 on purchases in the first 3 months from account opening.
  • Annual fee is $0 

The ongoing cash back reward includes high cash back rates in bonus categories. ​​Earn 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on internet, cable and phone services each account anniversary year. Earn 2% cash back on the first $25,000 spent in combined purchases at gas stations and restaurants each account anniversary year. Earn 1% cash back on all other card purchases with no limit to the amount you can earn.. The purchase rate is 18.49% - 24.49% Variable.

*All information about the Ink Business Cash® Credit Card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.

4. U.S. Bank Business Platinum Card

This business credit card offers a 0% intro APR on purchases and balance transfers for the first 18 billing cycles, and after that a variable APR. It also has no annual fee. While it doesn’t offer rewards, it features employee card spending controls and expense management tools. 

*All information about the U.S. Bank Business Platinum Card has been collected independently by Nav. This card is not currently available through Nav. To see what business credit cards are available, please visit the Nav Credit Card Marketplace.

FAQs

Can I transfer business debt to a personal 0% APR card?

Read your cardholder agreement first. Many will specify what types of purchases or balance transfers can be made with the card. While an issuer is unlikely to scrutinize individual purchases or question whether they are really for business expenses (or vice versa), if you’re unable to pay the debt you could run into problems by using it in a way that is not permitted.

There’s another issue with transferring business debt to a personal credit card: it could affect your personal credit scores. High balances on personal credit cards impact your credit utilization ratio, which could result in lower your personal credit scores. 

What’s the average credit score needed for the best 0% APR offers?

Most credit card issuers require good to excellent credit to qualify for the best credit card offers. Of note:  Drozd and Kowalik’s research found that those who took advantage of these offers had average credit scores. 

You can check, manage and monitor your personal credit and business credit with Nav. 

Are there 0% Intro APR cards specifically for businesses?

Yes! There are quite a few. Find the best business credit cards with 0% intro APRs here

How soon before the intro period ends should I pay off the balance?

Read the terms of the offer carefully to understand what terms apply. If your goal is to avoid interest charges, you’ll want to clearly understand when you need to pay off your balance to avoid interest. If you’re not sure, contact customer service for your card issuer. 

Can I negotiate with the credit card company to extend the 0% APR?

Not likely. If you can’t pay it off before the 0% intro APR ends, you’ll either need to transfer it to another card issuer (and likely pay another balance transfer fee), or pay interest on the balance, per the terms of the offer. 

Is 0% APR legit?

Credit cards with an interest-free introductory period can be an excellent way to pay for purchases over time, without incurring interest. Read the warnings earlier in this article to make sure you avoid common traps. 

Is 0 APR or no annual fee better?

You may be able to get both. Some cards offer no annual fee, and an interest-free introductory period. If not, weigh the cost of the annual fee against interest you’d pay otherwise to determine if the card is a good deal for your specific needs. 

Is 0% APR or rewards better?

There are a number of business rewards credit cards that offer 0% intro APRs. Rewards can be generous, and include cash back, travel rewards, or more.

This article was originally written on July 5, 2024.

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