How Do Business Credit Card Balance Transfers Work?

What Is a Balance Transfer?

A balance transfer credit card allows you to transfer a balance from one credit card onto another credit card that has a lower interest rate, or annual percentage rate (APR). Typically, balance transfer cards offer 0% APR on the balance transferred for an introductory period, such as 12 months. By moving debt from a higher-interest credit card to the balance transfer card, you give yourself time to pay off the debt without incurring additional interest. The longer the introductory period lasts, the more time you'll have.

Suppose you transfer a $10,000 balance from a business credit card with a 21.95% APR (the average maximum APR for business credit cards as of September 2020) to a card offering 0% intro APR for 12 months. Assuming you pay off the balance within 12 months and don't make any additional purchases on the new card, you would save $2,195 in interest. Once the introductory APR period is over, however, your new credit card's APR will climb, and any balance you carry will start accruing interest.

Business credit card balance transfers work the same way as consumer credit card balance transfers. You find a business credit card that has a good balance transfer offer and complete an application. Once you're approved—which generally requires good to excellent credit, or a FICO^® Score^☉ of 670 or above—the credit card company determines a credit limit. When you request a balance transfer, the new credit card company pays off the balance being transferred and moves it onto your new card. There's usually a balance transfer fee of 3% to 5% of the amount being transferred; this fee gets rolled into your new balance on the new card.

What Are the Benefits of Using a Business Balance Transfer Credit Card?

Using a balance transfer card can benefit your business in several ways.

• Less interest: Transferring your balance to a business credit card with a lower APR can reduce the total amount of interest you pay. This frees up money you can use for other business needs or to pay off existing debt.
• Greater convenience: If you're carrying balances on multiple high-interest business credit cards, transferring all of the balances onto one balance transfer card helps consolidate your debt. This can make it easier to keep track of payment due dates and avoid missing a payment, which could hurt your credit score.
• Lower credit utilization: A balance transfer could lower your credit utilization rate, or the amount of debt you use compared with your available credit. A credit utilization ratio of more than 30% can negatively affect your credit score. Using our earlier example, if the card with a $10,000 balance has a credit limit of $20,000, your credit utilization rate on that card is 50%. Moving the debt to a balance transfer card with a $40,000 credit limit would reduce your credit utilization ratio on the first card to 0%, and the new card would have a credit utilization ratio of 25%. This could improve your credit score.
• More available credit: Getting a new business credit card increases the total amount of credit available to your business. This can offer the flexibility you need to cover unexpected business expenses or take advantage of opportunities quickly without having to apply for a business loan or line of credit.

Are There Drawbacks to Business Balance Transfer Credit Cards?

There are some potential drawbacks to using a balance transfer credit card.

• Balance transfer fees: You can sometimes find business credit cards that don't charge a balance transfer fee, but in most cases, you can expect to pay 3% to 5% of the amount transferred. To decide if paying a balance transfer fee is worth it, weigh the amount you'll save in interest against the fee. For instance, with a $10,000 balance transfer, you could expect to pay $300 to $500 in balance transfer fees, depending on the terms of the credit card. If you have a 5% balance transfer fee and pay off the balance before the 0% APR period ends, you will still save at least $1,695 ($2,195 in interest saved minus a $500 balance transfer fee).
• Potential for more debt: Paying off the transferred balance before it starts accruing interest is key to saving money with a balance transfer. Also keep in mind that many balance transfer cards also have different APRs for purchases than for transferred balances, so using the card for new purchases could rack up more interest or even nullify the intro 0% APR on the transferred balance. You can look for a card that offers a 0% introductory APR on both balance transfers and purchases, or make sure you avoid making purchases on the balance transfer card at least until the promotional period ends. Check your card's terms to find out exactly how purchases can affect your intro rate.
• Reduction in average account age: A long, positive credit history is a factor in a good credit score; getting a new credit card will reduce the average age of your credit accounts. To minimize the impact of the new credit card, keep the old account open, even if you aren't planning to use it anymore. This will also help increase your available credit and reduce your credit utilization rate.
• Hard inquiry on your credit report: Applying for a balance transfer card will generate a hard inquiry on your credit report. A hard inquiry has a minor impact on your credit score that typically lasts for a few months. However, several hard inquiries in a short time period could have a more serious negative effect on your credit. Avoid applying for multiple business credit cards or other types of credit at the time you're applying for a balance transfer card.

How Do Balance Transfers Impact Your Credit Score?

A business credit card can have more of an impact on your credit score than a personal credit card. Most business credit card agreements include a personal guarantee, meaning you—not your business—are personally responsible for any charges on the card. (That's one reason credit card issuers generally consider your personal credit score when evaluating your application for a business credit card.)

Personal credit cards report to the three major consumer credit reporting agencies—Experian, TransUnion and Equifax. Depending on the card issuer, a business credit card may report to the consumer credit bureaus, the commercial credit bureaus (Experian Business, Dun & Bradstreet and Equifax), or both. (You can find out by asking the credit card issuer before you apply for the card.)

In short, the way you use a balance transfer business credit card can help or hurt both your business's credit score and your own. If your business credit score suffers, your business might have a harder time getting favorable terms from new vendors, using credit to pay suppliers or borrowing money from the bank.

A balance transfer on a business credit card could help improve your credit score by:

• Saving money on interest and helping you pay down debt faster
• Increasing your available credit
• Reducing your credit utilization rate

A business credit card balance transfer might hurt your credit score by:

• Lowering the average age of your credit accounts
• Tempting you to accrue more debt
• Generating a hard inquiry on your credit report

Beyond Balance Transfers: Other Ways to Save

If you can't qualify for a balance transfer business credit card, consider these ways to reduce debt, save money and carve out more cash to put toward your high-interest business credit card balances.

• Identify and reduce nonessential spending. For example, you probably have subscriptions, memberships or fees that are being charged to your business credit card monthly or annually. Eliminating or cutting back on these expenses can help you save.
• Compare prices on business services. This could include insurance, phone services, internet and more. You may be able to cut costs by switching providers.
• Negotiate with suppliers. Can you agree on a reduced rate for paying early or paying in cash? You might even be able to barter products or services with some suppliers in lieu of cash.

If you have a good credit score, getting a business credit card with a favorable balance transfer APR can help you save money, pay down business debt and access more credit. But these cards can be hard to find, and not everyone can qualify. Before using a balance transfer credit card, carefully weigh the trade-offs between the potential savings and fees. Then make a commitment to paying off the balance before the introductory period expires.