Last updated on April 5th, 2023
Credit cards aren’t just for casual consumers. For business owners, both entrepreneurial and established, it isn’t always easy to secure funds via investors, loans, or even company profits to cover the cost of everyday expenses or the occasional large purchase. Having a business credit card in place offers convenience, a steady source of buying power, and the added benefit of being rewarded your shopping – much as a personal credit card does. But similar as both types of payment cards may be, there are some key differences that clearly separate the two. Read on to learn the basics of business cards and what to look for when comparing them.
Business Credit Cards at a Glance
A business credit card is essentially a sibling of the personal credit card, and it’s composed of roughly the same features: a line of revolving credit, an annualized interest rate on unpaid balances, and – depending on the type of card – a set structure that gives you something back for your card usage (points, miles, cash back, etc.).
As the name implies, though, business credit cards are meant to be used by business owners – or their employees – to cover business expenses. A business card also affects the credit history of a business, which differs from personal credit history. As such, it’s important to keep business and personal expenses on different cards; mixing them makes it difficult for account keeping, and if you become unable to pay off a balance, you’ll business will suffer for it.
Just because business credit cards are meant for business expenses doesn’t mean you’re restricted to just one spending category, though. Since there are multiple industries, and every company within them has different needs, there is no single purchase category that qualifies as “business”. Likewise, just because it’s a business card, it doesn’t mean you can’t get something back for covering company costs. Issuers offer credit cards that reward users with cash back, travel points, airline miles, and more. There are co-branded business cards that are partnered with retail merchants, hotel chains, and frequent flyer programs. So if your business requires constant travel, you’ll benefit from a business card that rewards you for using it towards flight reservations. If you regularly need to purchase office supplies, a cash back business card will return you a percentage on items you need to buy anyway.
Business credit cards, then, can be versatile. If you use one correctly, it can greatly propel your enterprise forward while also netting your covetable perks as a bonus.
Just like personal credit cards, business credit cards vary on the credit required for approval. For startups and small side businesses, a secured business card is an option. For companies with a robust credit history and a solid foundation, there are premium business cards that they may qualify for.
Applying for a business credit card is similar to the application process for a personal card, but you’ll have to provide some additional information. Naturally, you’ll need to supply details about your business – issuers need a clear picture of applicants and the level of risk they assume when providing a line of credit – but you’ll also need to supply a personal guarantee. A personal guarantee is a pledge that holds you personally responsible for your business’s debt in the event that the business fails. It will also be useful, though not necessarily required, to have a strong personal credit history when applying for a business credit card.
There are business cards with annual fees, and there are cards without them. Cards with fees will usually offer more benefits, though business cards sans annual fees are not entirely devoid of perks. Regarding foreign transaction fees, they are common in general-use business cards, but you likely won’t see them enforced on travel or co-branded airline and hotel business credit cards.
What to Look for in a Business Credit Card
The type of business card you apply for will depend on your and your business’s needs. Look for the common benefits below when researching your ideal first (or next) business credit card:
|The Most Important Things to Look for:|
|Welcome bonus||Many cards today court applicants with a sizable signup bonus in the form of rewards points or frequent flyer miles. The sums vary; you may see offers of 5,000 bonus points after making an initial purchase, or you might come across a bonus of 125,000 hotel points after spending $3,000 within the first three months as a cardholder. Travel business cards, in particular, can be very generous with their bonuses. In fact, you don’t need to own a business that requires constant travel to apply for a travel business card. As long as you reserve it for company expenses, you can cash in your bonus on a well-deserved vacation.|
As mentioned, travel business cards will almost always involve a rewards or loyalty program that earns you points or miles with your purchases. For general travel cards, purchases in select categories – like flights or restaurants – accumulate points at a multiplied rate. Hotel and airline co-branded cards will also give you additional points on certain categories, as well as when you make purchases directly with the brand.
Cashback is the other major rewards setup found in business cards. Like travel cards, select categories – think office supply stores and telecommunications services – can earn you cash back at an accelerated rate. Some cash back cards eschew the category multipliers and instead offer 1.5% or even 2% back on every purchase. When you’re ready to redeem your accrued rewards, you can do so for statement credits, travel booking, hotel nightly stays, or gift cards.
|Other Things to Look For:|
|Free employee cards||Business credit cards offer an efficient way to keep track of company spending, and if you have employees who regularly make company expenses, look for a credit card that allows you to issue additional cards for your staff. Additional cards issued at no extra cost is a popular perk, so you’ll find it in multiple offers.|
|Business tools||Issuers can make it easy to keep track of your money’s movements thanks to resources like the integration between your account statement and accounting software, custom expense reports, and irregular activity alerts.|
|Intro APR||You may have plenty of use for your card, be it for multiple small purchases or one big-ticket expense, so paying off a balance over time with no interest charges to worry about is a welcome incentive.|
Business Credit Card Pros and Cons
Provided you have an acceptable financial history, a business credit card can grant you easy access to funds for covering regular business expenditures, especially if you find yourself in an emergency. Business credit cards tend to have higher credit limits than personal credit cards, since it’s likely you’ll be making more frequent, and more expensive, purchases for your company. Your business credit history will also benefit with responsible card use, so you’re not limited to bank loans or trade credit lines from suppliers to raise your score. And if you issue extra cards for your employees, their (ideally) sensible purchasing practices will only profit your borrowing reputation. Speaking of bank loans, you’ll have an easier time getting approved for a business credit card than a traditional loan, and proving you’re trustworthy with the former will increase your approval chances for the latter.
Business credit cards are not a perfect resource, and there are numerous factors to keep in mind when applying for one. They’re not disadvantages, per se; think of them instead as caveats you must be mindful of. Firstly, interest rates are not the lowest on business cards, so you’ll want to prioritize paying off your balance in full if you wish to avoid painful interest charges. You will also need to stay on top of employee spending; don’t request additional cards if A) You can’t afford it and B) You can’t trust your subordinates to be responsible with your buying power.
Business credit cards are exempt from consumer protections under the federal Credit Card Accountability Responsibility and Disclosure Act, so issuers are not required to give advance notice if they raise your interest rates. In addition, they may impose higher late fees than what is allowed for personal cards. Lastly, the personal guarantee you make when applying for a business card can come back to bite you hard if you become personally responsible for any debt your business incurs. Such a burden can impact both your business and personal credit history, and no one wants to be hit with that double whammy.
Business credit cards, then, can be a great resource for companies of varying sizes – provided you can use one wisely and are aware of the potential pitfalls. Always read through a card’s terms and conditions to be fully informed on aspects that may impact you positively and negatively. You’ll have your business’s financial reputation to care for as well as your own, so it’s worth spending plenty of time comparing your options until you find the card that’s right for you.