Running a business comes with many financial challenges. Cash flow issues are common, especially in the early stages of a company’s growth. During tough economic times or seasonal slowdowns, business owners may struggle to pay suppliers, meet payroll, or cover other operating expenses.
One potential solution is utilizing balance transfers on business credit cards. This strategic financial move allows you to consolidate higher-interest debts onto a single card with a lower promotional rate. Done correctly, balance transfers can free up cash and provide breathing room when you need it most.
How Do Balance Transfers Work for Businesses?
A balance transfer involves moving an outstanding balance from one or more credit cards over to a new card that offers 0% introductory APR for a set period. Typically, you get 6 to 21 months to pay off the transferred balance interest-free. After the intro period, a standard purchase APR applies.
Cards marketed specifically for balance transfers may charge a one-time balance transfer fee, usually 3% to 5% of the amount moved over. Still, this small upfront cost is often less expensive than months or years of high-interest charges on existing card debt.
As a business owner, you can use balance transfers in several strategic ways:
1. Save Money on Interest
The top reason to do a balance transfer is to reduce interest expenses. Transferring high-rate credit card debt to a 0% APR card effectively hits pause on accruing interest for a 6 to 21 month period. This frees up cash to reinvest in your business.
For example, if you transferred $15,000 at a 19% APR over to a 0% card with a 12 month intro rate, you’d save around $2,375 in interest. That extra capital could be used for marketing, equipment upgrades, hiring staff, or other investments to grow the business.
2. Consolidate Multiple Balances
Rather than tracking several credit cards from different issuers, a balance transfer consolidates multiple high-rate debts onto one card. This simplifies accounting, budgeting, and repayment since there’s just one monthly payment.
Consolidating also makes it easier to visualize total debt and create an actionable payoff plan. When balances are spread over many cards, it’s harder to grasp the full picture and make a serious debt reduction effort.
3. Improve Cash Flow Issues
For small businesses facing cash crunches, balance transfers provide temporary financial relief. Typically credit cards require minimum monthly payments, often $35 or more. Transferring debt to a 0% APR card means you’ll only need to pay back the principal balance over the intro period.
This significantly lightens the monthly burden. Freeing up minimum payment obligations delivers extra working capital to cover short term cash needs.
For seasonal companies, balance transfer strategies help bridge cash flow gaps. The 0% intro rate lets you temporarily defer payments during slow months and repay during higher revenue periods.
Key Factors for Business Balance Transfer Success
While balance transfers provide tempting benefits, they require careful planning and disciplined execution. Rushing into a transfer could leave your company worse off if you can’t repay the full amount before rates spike post-intro period. Here are tips for making balance transfers work for your business:
Calculate the Payoff Timeline
First, tally all debts you intend to consolidate and transfer over. Calculate the total balance, then divide by the # months of 0% APR the new card provides. This gives the monthly payoff goal amount. Build a repayment schedule to ensure you can realistically pay the balance in full before post-intro rates hit. Budget for at least $200 per month extra cushion.
Mind the Balance Transfer Fees
Most balance transfer cards charge an upfront fee, typically 3% to 5% of the transferred total. Factor this into payoff planning. If moving over $15,000, a 3% fee would add $450. In some cases, though, the money saved on interest offsets transfer fees. Run the numbers carefully beforehand.
Pay Down Highest Rate Debts First
When picking balances to transfer, prioritize the highest interest accounts first. List all debts by APR rates, then transfer top rate balances until reaching the maximum intro period limit or credit line cap on the new 0% card. Pay minimums on lower rate debts until the 0% balance is fully repaid.
Automate Payments
Don’t risk missing a payment and voiding the 0% intro APR. Set up automatic monthly transfers to pay the card on schedule. Online banking bill pay or business budgeting software makes this simple. Even small missteps can sabotage balance transfer savings, so automation brings peace of mind.
Avoid New Charges During 0% Period
The key to balance transfer success is becoming debt free, and not taking on more obligations. Piling on new transactions while paying off the 0% consolidated amount leads to a recurring debt cycle. Curtail spending on the card until reaching a $0 balance.
Finding the Best Business Balance Transfer Credit Card
Choosing the right balance transfer card is critical, as shorter 0% terms or higher transfer fees reduce potential savings. Here’s what to evaluate:
0% Introductory APR Duration: Cards with 15+ month intro periods allow more time to repay. Shoot for at least 12 months with 0% financing.
Balance Transfer Fee: Typically 3-5% of the transferred total. Compare cards to find the lowest fees.
Credit Limit: Ensure the card’s maximum balance can accommodate all debts you intend to consolidate.
Ease of Use: Select user-friendly cards with online account access, spending alerts, mobile apps, and payment automation.
Compare popular business balance transfer cards like Ink Business Cash, Spark Cash Select, and Wells Fargo Business Platinum. Contrast fees, credit limits, and intro rate durations to find the optimal fit.
Use Balance Transfers Strategically, Not Repeatedly
The most financially vulnerable businesses lean on balance transfers as a recurring band-aid solution. While transfers provide temporary relief, serially repeating them to cope with ongoing cash problems is unsustainable.
The healthiest approach is thinking strategically about one-off balance transfer use cases that resolve temporary cash crunches. Examples include:
- Bridge financing inventory purchases during seasonal revenue declines
- Funding a major one-time business investment like new equipment
- Consolidating multiple card balances as part of a broader debt reduction plan
Build scenario analyses to determine optimal timing and repayment plans. Approach balance transfers as a tool for overcoming occasional cash flow roadblocks, not a permanent crutch.
Matching smart balance transfer strategies with disciplined repayment tactics can provide working capital breathing room for businesses facing economic uncertainties. But rushing in without planning often leads to bigger long-term headaches. Spend time running the numbers to set your company up for maximum savings and success.
Frequently Asked Questions
What is a balance transfer?
A balance transfer involves moving outstanding credit card debt from one or more existing cards over to a new credit card offering a promotional 0% APR introductory rate for a set period, typically 6-21 months. This allows you to save substantially on interest charges during the intro period.
What are the main benefits of a balance transfer?
The top benefits are saving money on interest expenses, consolidating multiple high-rate balances into one place, and improving cash flow by deferring payments interest-free during the introductory 0% APR period.
What fees are involved with balance transfer?
Balance transfer cards typically charge an upfront balance transfer fee of 3-5% of the amount transferred. While this costs something initially, the interest savings often offset the fees.
How do I calculate the payoff timeline?
Add up all debts you intend to consolidate and transfer, determine the total balance, then divide by the # of months of the 0% intro APR promotional period. This gives the monthly payment goal for repaying the full amount before the standard APR kicks in .
What mistakes should I avoid while doing a balance transfer?
Key errors include missing payments and voiding the 0% rate early, failing to budget for balance transfer fees, and continuing charging purchases on the card during the intro period instead of focusing solely on repayment .
Sources:
- Chase – Business Credit Card Balance Transfer: What to Know
- Bankrate – How To Do A Balance Transfer
- Chase – Business Credit Card Balance Transfer: What to Know
- CreditKarma – 4 Best Business Balance Transfer Credit Cards in 2024
- [Investopedia – How Credit Card Balance Transfers Work](https://www.investopedia.com/credit-cards
