Online Extra: Like Cash, but Better

With perks and convenient simplicity, small-business debit cards are becoming an increasingly viable alternative to traditional plastic

It's hard enough choosing these days between the variety of small-business credit cards -- some with attractive low rates and no fees, others with fantastic perks. Now, you can also choose between about 150 small-business debit cards, many offering lucratiive awards as well.

Over the past three years, more banks have started offering MasterCard or Visa branded debit cards for small-business owners. According to The Nilson Report, a financial newsletter based in Oxnard, Calif., spending on MasterCard and Visa-branded small-business cards totaled $37.50 billion last year -- of debit cards accounted for 20%. "Small-business owners are using their consumer debit cards for business," says Craig Card, vice-president of Visa's small business card products division. "And as they migrate to business products, the adoption of small-business debit cards is gaining momentum."

SUBSTANTIAL INCENTIVES. Why choose a business debit card? Debit cards offer a convenient alternative to checks and petty cash, as well as letting you track expenses more accurately. Most come with online reporting features, which let you view payments online as a part of your checking-account activity, so you can view each transaction in detail -- unlike a check payment, where only a check number shows up in the computer. "Small-business owners are always looking for ways to simplify their lives," says Tom Regante, a business-finance specialist with Merrill Lynch in Baltimore. "And this is a time-efficient way to manage their cash flow and monitor their expenses."

Debit cards are also a good way to rake in substantial discounts and free airline miles. MasterCard, for instance offers a 40% discount on Web and telephone conferencing through Evoke Webconferencing, as well as a 10% discount at Avis Car Rental. And Visa gives you a 14.5% discount on Holiday Inn Hotels and discounts of between 6% and 10% on computer products from Compaq.

What else can you get? In an effort to win your business, banks are layering other rewards programs on top of MasterCard and Visa's standard benefits. The Chase/Continental Business Banking Card, launched in August, 1999, for instance, offers one mile on Continental Air for every dollar of purchases, and with no restrictions or blackout dates.

MONTHLY DEBIT. Merrill Lynch's Business Signature Card offers points redeemable for merchandise and for airline miles on any airline without restrictions. Moreover, with Merrill's debit card, entrepreneurs are only subject to one monthly debit from their accounts. "This way you can make purchases all month long and you don't get charged till the fourth Wednesday of each month," says Regante. "The delayed debit is a money-saving tool that makes sense for business owners."

Unlike credit cards, however, you can't carry a balance from month to month. And, generally speaking, you can still expect to pay some pretty hefty annual fees, whereas some credit cards are free. For example, Chase's debit card comes with a $65 annual fee and each additional card for employees costs $65, too. Merrill's Business Signature Card costs $95 a year but comes with up to 99 additional free cards.

By Naween A. Mangi

Edited by Robin D. Schatz

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE