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Cash flow is 'more important than ever' while PPP loans stall—here's how small business credit cards can help

A credit card can keep your small business afloat when cash flow is interrupted or the economic future is unclear, as many are finding out during the coronavirus pandemic.

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The federally-funded Paycheck Protection Program (PPP) dried up on April 16 and was replenished on April 24 with an additional $310 billion in forgivable loans — but it still may not be enough.

Facing unexpected cash flow issues amid the unprecedented economic downturn, small business owners are scrambling to find resources to help them stay afloat and prepare for what may be years-long economic recovery.

Many, like Bobby Warren of Wooster Media Group, look to credit cards to mitigate the current dip in revenue.

"I paid some freelancers [this month] with my credit card in order to keep my business checking balance a little higher," Warren tells CNBC Select. This helped Warren avoid late charges on what he owed, even as he was waiting on outstanding payments himself.

And he's not the only one; Eddie Davis, a small business financial expert with FINSYNC, argues that small business credit cards are often an essential asset during a crisis. They allow businesses to delay the impact of certain expenses on their cash reserves, and potentially pay "those expenses off when funds from PPP loans finally arrive, or in installments when the economy opens up again," Davis says.

Below, CNBC Select breaks down how small businesses are using credit cards to stay afloat while much of the country shelters in place.

Before you charge anything, consider your cash flow

"Tracking cash flow is more important than ever," Davis tells CNBC Select. Before you charge any business expenses to a credit card, you'll want to know exactly how much revenue you expect to bring in over the next 15, 30, 60 and 90 days. 

For example, if you have outstanding invoices totaling $5,300 that you expect to be paid in 30 days, you know approximately what your cash flow will look like for one credit card billing cycle. This should create some structure for how you plan your spending.

And if you were approved for a PPP loan that you expect to arrive within 10 days, you have time to plan how you will use it once you fulfill payroll costs for your staff. According to the U.S. Department of the Treasury, you can use PPP loans for up to two months' worth of costs, plus 25%, and they can be used for the following expenses:

  • Payroll (including benefits)
  • Interest on mortgage obligations incurred before February 15, 2020
  • Rent that was under lease agreement before February 15, 2020
  • Utilities, for which service began before February 15, 2020

Many businesses are unsure of exactly how long it takes to receive a PPP loan or the new Economic Impact and Disaster Loans (EIDL). The Small Business Administration reports 10 to 21 days, yet some businesses still are still waiting to receive their loans from the first round of applications.

While you wait, Davis recommends using software and invoicing tools to project your costs and revenue as far into the future as you can accurately estimate. Only then can you decide how to use available loans and credit until the economy recovers.

Are credit cards preferable to loans?

When choosing between credit cards or loans, "preference should be given to the option that fits best with the intended payback timing," says Davis.

"A 0% APR introductory rate is useful, " he says, but if you plan on carrying debt past the introductory period you should consider a loan, which will probably have a better interest rate.

To determine whether you can afford to cover expenses on a 0% APR credit card, you'll need to add up the total amount of expenses you want to finance with your credit card and divide it by the number of billing cycles the intro period lasts.

For example, the Blue Business® Plus Credit Card from American Express comes with 0% APR for the first 12 months on purchases. After that, your APR will be a variable rate, 13.24% to 19.24%, depending on your creditworthiness (see rates and fees). Similarly, the Blue Business CashTM Card from American Express offers 0% APR for 12 months (then 13.24% - 19.24% variable APR; see rates and fees). Neither card has an annual fee.

If you expect that you'll need to charge $10,000 worth of business expenses on your credit card over the next year, know that you'll need to make payments of at least $833.33 per month to avoid paying interest at the regular APR when the intro period is done.

If you think you'll need more than 12 months to pay off the charges you accrue during this economic downturn, you should consider a small business loan with a much lower APR.

What kind of costs can small businesses cover with a credit card?

In light of recent events, vendors are being more flexible than ever about what kind of costs you can pay for with credit, says Davis. Rent, supplies and contractors are good examples.

"The vendor (a landlord, for example) likely has cash flow disruptions of their own," he says. They might be more likely to accept payment through third-party payment platforms like Plastiq, RentMoola or Radpad (for rent), and even Venmo or PayPal for other kinds of goods and services.

"If a customer offers to pay them through a fintech solution that allows them to receive payment today, that's definitely better than waiting on that customer to have cash available," argues Davis. Suppliers and contractors might not normally be willing to accept a credit card, he says, "but [they] are more open minded in today's economy."

While you might be able to get by with using a credit card for everyday business expenses like rent, utilities and freelance contractors, remember that many payment processing platforms charge fees of 2% to 3%. Before you jump at any of these solutions, be sure to calculate whether this is the most sustainable option long-term and make an informed decision based on what's best for your business.

What's better: a business credit card or a business charge card?

When choosing between a small business credit card or a business charge card, you'll need to factor in costs versus rewards.

Many business charge cards, like the The Business Platinum Card® from American Express and the American Express® Business Gold Card come with top-notch rewards on dining, airline travel and hotels. This can be great for earning rewards while entertaining business partners and treating clients. But business charge cards are meant to be paid off in full each billing cycle and have no credit limits. These cards also have high annual fees: the Business Platinum Card is $595 a year (see rates and fees), and the Business Gold Card is $295 (see rates and fees).

On the other hand, credit cards have credit limits, and as long as your balance stays under your approved amount you can get by making only the minimum payments. Of course, this is costly in the long run due to high APR fees, but your account will remain in good standing.

"From both a rewards and cash flow perspective, credit cards are preferable because of the ability to delay the impact to cash," says Davis.

Yet, the Amex suite of business charge cards do come with excellent perks. For example, with the Amex Business Platinum card, you'll receive a $200 airline fee credit for incidentals on one qualifying airline each year, plus unlimited access to the American Express Global Lounge Collection and up to $100 credit for Global Entry/TSA PreCheck fees (every four years). You can also get up to a $200 annual statement credit for Dell purchases.

However, the Ink Business Preferred® Credit Card, one of CNBC Select's best credit cards for small businesses, offers business owners with free employee cards, 100,000 bonus points after you spend $15,000 on purchases in the first three months after account opening, plus 3X points per $1 spent in the following categories each account anniversary year: travel; shipping purchases; internet, cable and phone services; and advertising purchases with social media sites and search engines. (This applies to the first $150,000 spent in combined purchases, then earn 1x point per $1 on all other purchases.) There is a $95 annual fee.

During a time when most travel has stopped, it's important to consider your expenses so you can choose a small business card that offers the best rewards program for your current spending need.

Applying for a business credit card is easy

Small business credit cards come with undeniable perks and can help you weather cash flow interruptions during uncertain times. If you're interested in applying for a small business credit card, you can check your business's credit score for free. Or, if you are the legal owner of the business, you can often use your own personal credit score. This applies even if your business is a side hustle, such as dog walking or babysitting.

As you look for the right credit card for your business, consider what kind of flexible payment options you need, what rewards and benefits would be most useful for your spending habits and remember to think long-term. You want to look for a credit card that can hold you over during this current crisis, while also offering potential value in the future.

A side-by-side comparison of these business credit cards

Credit cardBlue Business® Plus Credit Card from American ExpressBlue Business® Plus Credit Card from American ExpressBlue Business Cash™ Card from American ExpressBlue Business Cash™ Card from American ExpressThe Business Platinum Card® from American ExpressThe Business Platinum Card® from American ExpressThe American Express® Business Gold CardThe American Express® Business Gold CardInk Business Preferred® Credit CardInk Business Preferred® Credit Card
Annual fee$0$0$595$295$95
RewardsEarn 2X Membership Rewards® points on everyday business purchases up to $50,000 per year, then 1X point per dollarEarn 2% cash back in the form of a credit statement on all eligible purchases (up to $50,000 per calendar year, then 1%)Earn 5X Membership Rewards® points on flights and prepaid hotels on amextravel.com;  35% Airline Bonus using Pay with Points for flights with select qualifying airlinesGet more rewards with 4X Membership Rewards® points on two select categories where you spend the most each month; Get 25% points back, after you book a flight using Pay with PointsEarn 3X points per $1 on the first $150,000 spent in combined purchases in select categories each account anniversary year (travel; shipping purchases; internet, cable and phone services; and advertising purchases with social media sites and search engines), 1X point per $1 on all other purchases
Welcome bonusNoneNoneEarn 75,000 Membership Rewards® points after you spend $15,000 on qualifying purchases within your first 3 months of Card MembershipEarn 35,000 Membership Rewards points after you spend $5,000 on eligible purchases with the Business Gold Card within the first three months of Card MembershipNew Offer! Earn 100,000 bonus points after you spend $15,000 on purchases in the first 3 months from account opening
Intro APR0% for the first 12 months on purchases0% for the first 12 months on purchasesNoneNoneNone
Regular APR13.24% to 19.24% variable13.24% to 19.24% variable See rates and fees14.24% to 22.24% variable15.99% to 20.99% variable
Balance transfer fee3%, $5 minimum; N/A for new applicants3%, $5 minimum; N/A for new applicantsNot applicableNot applicableNot applicable5%, $5 minimum
See our methodology belowLearn MoreOn American Express's secure siteLearn MoreOn American Express's secure siteLearn MoreOn American Express's secure siteLearn MoreOn American Express's secure siteLearn MoreInformation about the Ink Business Preferred® Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Our methodology

To determine which business cards offer the best value, CNBC Select analyzed 21 of the most popular credit cards available to U.S. business owners. We compared each card on a range of features, including annual fee, employee card fee, rewards, welcome bonus, introductory and standard APR and foreign transaction fees, as well as factors such as required credit and customer reviews when available. We also considered additional perks, the application process and how easy it is to redeem points.

The main criteria in our ranking were the rewards rates and added benefits, such as redemption bonuses, insurance coverage and expense management features. The more perks a card had, the higher it ranked on our list.

Co-branded business cards, such as airline or hotel-specific cards, did not make our final list due to their often complex reward systems and potential to limit your travel options to a specific brand.

For rates and fees of the Business Platinum Card® from American Express, click here.

For rates and fees of the  American Express® Business Gold Card, click here.

For rates and fees of the Blue Business CashTM Card from American Express, click here.

For rates and fees of the Blue Business® Plus Credit Card from American Express, click here.

Information about the Ink Business Preferred® Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.