How 0% APR Financing Works on a Small Business Credit Card

Two people exchanging a stack of money

If you run a small business, then capital is your lifeblood. And when you see the chance to get a loan at 0% APR, it will certainly get your attention. And you’ll probably be looking for a “catch.”  There are many credit cards that offer 0% APR financing, and while there really isn’t any really bad “catch,” though there are a lot of things that you should know about these offers.


How 0% APR offers work for small business credit cards

The credit card industry is fiercely competitive, especially when it comes to small business credit cards. Card issuers are often willing to spend hundreds of dollars to acquire each new customer, and they have several ways to do so. Obviously, they spend heavily on marketing, but they also find it worthwhile to offer incentives to new applicants. These incentives can include cash back or other reward points and miles, as well as interest-free promotional financing offers.

These 0% APR promotional financing offers can be for new purchases, balance transfers or both. These offers typically last for a period of six months to as long as 18 months. The promotional financing period begins when the account is opened, which is typically the same time that a new account is approved. Note that this isn’t when the card is shipped, received activated or first used, so you’ll likely be several days into your promotional financing period before you can actually take advantage of your promotional financing on new purchases. However, you can immediately request a balance transfer to your new account once it’s approved.

While your 0% APR promotional financing offer is in effect, you won’t incur any interest on your eligible balances. However, you’ll still receive a statement and you’ll still have to make the minimum payment each month. And if you fail to make payments, then you’ll incur late fees and may have a penalty interest rate applied to your remaining balance. Once your promotional financing offer ends, the standard interest rate will apply to any remaining balance.

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How to best use 0% APR for purchases with small business credit cards

Interest-free offers for new purchases can be very valuable to small businesses, but only if they are used properly. The first rule is not to use these offers to go on a spending spree. Even though you won’t incur interest on a charge for many months, you’ll still have to pay it back. That’s why it’s critical that you only make business purchases that you would have made anyways. You also want to have a solid, conservative plan for repayment of the balance before you begin to accrue interest at the standard rate. You’ll want to pay off the entire balance before the promotional financing period ends, in order to avoid interest charges.

How to best use 0% APR for balance transfers with small business credit cards

When it comes to promotional financing for balance transfers with small business credit cards, there are several additional factors to consider. First, you will have to pay a balance transfer fee, which is typically 3% or 5% of the amount transferred. That amount is added to your new balance. You should also be aware that you can’t transfer a balance between two credit cards from the same card issuer, as these offers exist to acquire new business rather than to offer free financing on existing balances.

When you utilize a promotional financing offer for balance transfers with a small business credit card, your goal should be to pay off your balance before the promotional rate ends. That’s not just to avoid future interest charges, but also because every payment you make during the promotional financing period will go towards paying back the principle on your loan. Normally, a substantial percentage of your payments will go towards interest charges at the standard rate.

A smart way to pay off your balance transfer before interest begins to accrue is to divide the balance by the number of months in the promotional financing period and make that payment each month. That way, you’ll make a series of equal payments that will reduce your balance to zero before the promotional financing ends and the standard interest rate begins.

Other potential problems to avoid with 0% APR financing

Even when you have a good plan in place for paying off your 0% APR balances on your small business credit cards, there are still some other potential downsides that you need to be aware of, and avoid. The most important is missed payments, as you’ll still have to make a minimum payment each month.

When you miss payments on your small business credit card, you’ll incur late fees and may even lose your interest-free financing and have to pay the high, penalty interest rate. The best way to avoid late payments is to configure automatic payments through your card issuer. You can also create automatic payments through your bank account. Also, nearly all credit card issuers will give you the ability to create reminders for when your statement is ready and when your payments are due.

Also, you should never plan on transferring your balance to a new interest-free balance transfer offer before your current offer expires. There’s never any guarantee that you’ll be approved for a new offer, especially when you already have a large amount owed.

When you are requesting a balance transfer, you should always follow up with the bank that has the account you are making the transfer from. During the time it takes to complete the transfer, additional interest and fees could accrue, leaving you with a remaining unpaid balance. To prevent additional interest and late fees, be sure to keep track of your old account’s balance and statements. Don’t just transfer the balance and forget about it.

Another issue is when you have a card that offers interest-free financing on new purchases or balance transfers, but not both. With offers like these, it’s possible to have two different balances, one incurring interest and one that isn’t. When this happens, your payments will first be credited towards the minimum payment of each balance. Any payment beyond the minimum balance will be credited towards the balance with the highest interest rate first, which will be the one that doesn’t have a promotional financing offer.

Bottom line

0% APR promotional financing offers for small business credit cards can be extremely valuable, but only when you use them wisely. By using a 0% APR offer to avoid costly interest charges while you pay off your balance, or by avoiding interest on necessary purchases, you can leverage these offers to benefit your business as much as possible. Just be sure to steer clear of a few pitfalls, and you’ll enjoy the capital you need to make your business grow.

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Recommended: Not sure which card you should pick? Check out our recommendations on the 4 Best Small Business Credit Cards for Financing Your Business.

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