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Business Credit Card

Like a personal credit card, business credit cards offer business owners a way to make purchases now and pay back the money spent later. That way, business owners can get the capital they need to operate while simultaneously building credit, which will help them qualify for larger loans should they need to in the future.

What is a Business Credit Card?

Business credit cards function just like personal credit cards, with one key difference. Personal credit cards are offered based on your personal credit and impact your personal credit score. A business credit card has no impact on your personal credit, but it does impact your business’s credit score.

One of the first rules of running a business is separating your personal and business finances. That’s what a business credit card does automatically. When you make purchases with a business credit card, it won’t impact your personal card balance or available credit. As such, it’s a very useful way to fund a business without the complexity or strings of a business loan.

You’ll only pay interest on the credit you use, and only if you fail to pay back the credit used in a timely manner. A business loan, on the other hand, may charge you thousands of dollars in interest payments over the lifetime of the loan while equity-based financing requires you to share profits rather than put them in your own pocket.

How Do Business Credit Cards Work?

Like a personal credit card, your business credit card has a line of credit that you can draw from to make purchases. At the end of each billing cycle, the card company will provide you with a statement with a minimum amount due and a total balance.

As long as you pay your statement in full each billing cycle, you typically won’t pay interest on those purchases. If you fail to pay the full balance back within the grace period, you’ll pay interest on the remaining balance. Like other types of financing, your interest rate is determined by your creditworthiness, so if you have a stronger track record of paying back debts, you’ll have a lower interest rate.

Some business credit cards are charge cards, which require that you pay the entire balance back in full each month. However, charge cards usually have no limit, which can make them a better choice for high-revenue businesses that need access to larger amounts of working capital from time to time.

Business credit cards are also similar to business lines of credit, although not all business lines of credit come with an associated card. As such, all credit cards have a line of credit, but not all lines of credit have a credit card. Essentially, a business line of credit allows you to draw cash from a line of credit rather than just charge purchases to a card. While lines of credit typically have lower interest rates, credit cards offer perks and rewards, so there are pros and cons to each.

Top Business Credit Card Perks to Compare

Most business credit cards come with some sort of perk or special offer. This means that in addition to helping boost your company's credit report, your purchases can go toward some other boost for your business.

  • Cash back

    Many cards will offer cash back. The concept is simple: for every purchase you make, you'll get a percentage back, often as a statement credit for your future billing cycles. If you get 2% cash back, it means if you spend $10,000 on a piece of equipment for your business, you'll get $200 on a future statement. It doesn't sound like much, but if you're using a small business credit card for numerous purchases, that cash back can add up quickly.

    It should be noted that many cards will place limitations on how cash back works. Sometimes you'll only get that statement credit back at certain retailers or on certain purchases, like phone services or at office supply stores. Some cards will offer greater percentages back on various categories. Maybe a card will offer 5% back on office supply purchases, 3% back on gas, and 2% on everything else.

    Look at your monthly business expenses. Where are you spending the most money? Is there a business credit card available that can help you save even more on your monthly budget?

  • Foreign Transaction Fees

    Some cards will waive foreign transaction fees. This is obviously a very helpful perk for companies doing international business. If your company makes most or all of its purchases inside the United States, this is a perk that may not be useful for you.

  • Sign-up bonuses

    If you're looking for an immediate cash flow boost, you may want to look into cards with a quick bonus. Some will offer thousands of points or cash if you spend a certain amount in the first few months or in the first year.

  • Travel rewards

    If your business makes it necessary to travel extensively, you may want to consider a business card with air travel perks. Business travel expenses can add up quickly, so you'll want to make sure you're getting lots of rewards points for your travel or you're using those rewards points on the travel itself.

    Some cards will give airline miles similar to the way previously-discussed cards dole out cash. Others might match the miles you pay for. Many also include hotel perks.

  • Low cost

    Some business cards are set up to keep costs at a minimum by withholding some of the other rewards programs. You might find cards with a one-time fee instead of a hefty annual fee. Some will require no fee at account opening.

  • Employee cards

    Many cards will offer no-cost employee cards so that your account builds up more quickly and you can simplify accounting. When you have multiple cardholders building toward rewards, they can add up quickly and save more money.

  • Balance transfers

    Some cards are set up specifically to help business owners with balance transfers. If you've got numerous sources of credit card debt (and decent credit), you can transfer all those debts onto one card with a very low introductory APR. That can help you pay down those debts with the new card.

How to Get a Business Credit Card?

Getting a business credit card is a little more complicated than getting a personal credit card, but not by much. The process is mostly the same, you’ll just need some details about your business.

Compare Types of Business Credit Cards

Like personal credit cards, different business cards offer different perks. Some also function differently, like the charge cards we mentioned earlier which require full payment of the balance every month.

There are many, many business credit card options on the market so you’ll need to figure out your business’s priorities. Do you want a lower interest rate because you’re concerned about how quickly you’ll be able to pay your credit balance back? Do you want to take advantage of perks or a sign-up bonus? Do you need a card that offers great travel rewards? Don’t want to pay an annual fee?

Every business is different, but there are many business cards on the market that tailor to different needs.

Check Your Credit

New businesses with no business credit profile will need to lean on their owners’ personal credit files. The stronger your credit scores, the lower your interest rates will be.

If you’re concerned about your credit score, you should work to pay down any existing lines of credit and check your credit history to make sure there are no errors. Your personal credit score is based on many factors, but a major one is the ratio of credit you’ve used vs. your credit limit. If you can continue paying down debt, requesting a credit limit increase can boost your credit score. Just make sure you don’t get tempted to spend more.

Gather Business Details

Applying for a business credit card is less exhaustive than applying for a loan. You won’t need to show a business plan or detailed financial records. Really, you’ll most likely just need basics:

  • Your name and address
  • Social Security number
  • Business name
  • Business structure
  • Employer Identification Number (EIN) or Tax ID number

For some higher-limit cards, you may need to show some documentation of your company’s financial situation, but for most small businesses, it’s not necessary.

Shop Offers

Business credit cards compete for business just like personal ones do. There is a myriad of offers available at different times, from bonus points for spending a certain amount to temporarily reduced interest rates for new businesses. Take some time to shop around before making a decision.

Submit Application

For nearly all business credit cards, applying is as simple as filling out an online application. Provide the necessary information, submit any necessary documentation, and you should have a decision very quickly — sometimes immediately. Always review the terms of your offer to make sure you’re satisfied before signing on the dotted line. If you approve the offer, you’ll receive the card within a couple of weeks.

Put Your Card to Work

Finally, it’s time to spend on your business! Remember that there are smart and less smart ways to use credit cards. You should never spend more than you can afford to pay back in a timely manner and always try to pay the statement balance every month to avoid interest charges.

Maximizing your card’s perks and rewards depends on its specifics. Make sure you understand how points are awarded so you can earn the most points possible for your business purchases. If you can get bonus points for spending certain amounts or using your card for specific purchases, it’s smart to do so to get the most value from your card.

How to Qualify for a Business Credit Card

Different credit cards have different qualification requirements, but most small businesses can qualify for at least one business credit card. You don’t need an existing business credit history to apply for a credit card. Any business entity can apply.

To qualify, you just need a few pieces of information:

  • Your name and address
  • Business name and address
  • Business structure
  • Employer Identification Number (EIN) or Tax ID number

To qualify for the best cards and rates, you may also need some or all of the following:

  • Business tax return
  • Monthly/annual revenue reports
  • Business balance sheets

Online application portals check your credit history automatically when processing the application, so you won’t need to submit that information.

Pros and Cons of Business Credit Cards

All forms of small business financing have advantages and disadvantages. The right type depends on your specific business situation.

Advantages of Business Credit Cards

  • Accounting simplicity: Business credit cards make it easy to separate business spending from personal spending, which is especially useful for sole proprietors.
  • Great introductory offers: Many business credit cards offer excellent intro offers, like extended interest-free periods and cash back for your first few months of spending.
  • High credit limits: Since business cards are made for businesses, they often offer higher lines of credit than personal credit cards.
  • Rewards: Unlike loans and other forms of small business financing, business credit cards reward you for your spending with cash back, points on travel purchases, and more.
  • Employee cards: Not only can you earn points on your spending, but employees can, as well, while making business-related purchases that simplify expenses.
  • Business-related perks: Some business credit cards offer special perks that can help your business, like free access to accounting software or service discounts.

Disadvantages of Business Credit Cards

  • Personal guarantee: Like most personal credit cards, business credit cards will most likely require a personal guarantee that makes you personally responsible for any debt the business can’t pay. Traditional loans require the same, however, as do SBA loans up to a certain percentage of the loan.
  • Annual fees: While there are $0 annual fee business cards, the ones that offer the most perks and rewards tend to have higher annual fees than most personal cards.
  • Fewer protections: Business credit cards don’t have the same protections provided by the CARD Act. This means companies don’t have to warn you about planned interest rate increases, among other transparency practices. Always read the fine print before signing.

Is a Business Credit Card Right for You?

A business credit card is a nice asset for just about any small business. The question, really, is which business credit card is right for you?

Even if you’re a sole proprietor with very little overhead, having a $0 annual fee business card gives you the flexibility to earn points on business-related purchases and simplify your personal and business accounting.

Larger businesses with high overhead and operating expenses that can be paid by credit card can benefit from cash back and rewards programs. Likewise, employees who entertain clients or travel frequently should have business credit cards to ensure the company is maximizing its ability to earn rewards and streamline expense processes.

If you make purchases for your business, having a business credit card is a good idea. Just make sure to shop around to find the best offer and terms for your business.