Use a business credit card for flexible business financing and earn rewards on your business purchases.
A business credit card gives your business access to a credit line that can be used repeatedly to make purchases, or even to withdraw cash. Business credit cards are relatively easy to obtain and don’t require collateral to secure the credit line. Business owners must personally guarantee the credit card, meaning you agree to be personally liable for the amount borrowed on the credit card.
There are many business credit cards to choose from. Your business spending habits and the credit card terms should be the basis of your decision. This guide will help you learn more about business credit cards and how to choose the best one for your business needs.
What’s in this guide?
- Why choose a business credit card?
- Is a business credit card right for you?
- Business charge card vs. business credit card
- Business credit cards and credit ratings
- How to compare business credit cards
- How to apply
- Getting a business credit card with no personal guarantee
- What to watch out for
- Frequently asked questions
Why choose a business credit card?
There are many benefits to choosing a business credit card for business financing:
- Easier to apply and qualify for. A business credit card can be easier to obtain than other types of business funding, which makes it a good option for businesses without an established credit history. You can often apply online with some basic business and personal information and find out instantly whether your application has been approved.
- Earn rewards on business purchases. A business rewards credit card is perfect if your business spends a lot of money each month, especially in categories like office supplies or business travel. You can effortlessly earn cash to reinvest in your business or travel rewards to offset the cost of your business trips.
- Separate business and personal finances. Using your personal credit card for business purchases means you have to spend more time reviewing and separating out purchases for accounting purposes. Using a business credit card as the sole source of funding for business expenses reduces the amount of time you spend organizing both your personal and your business finances.
- Alternative to business loans. A business credit card gives you constant access to funding that you don’t have to reapply for each time you need to make a new business purchase. While you may use business loans to fund larger business purchases, a business credit card can be useful for recurring expenses as well.
- Help build business credit. In the future, your business may need to apply for larger loans or credit limit. Using a business credit card – and making your payments on time – can help build your business credit to allow you to qualify for more credit in the future.
Is a business credit card right for you?
Not every business or business owner will benefit from having a credit card. Here are some factors to consider as you decide whether your business really needs a business credit card. A business credit card is right for you if:
- You want to establish business credit for your business. Having a positive business credit history will improve your ability to get approved for larger loans in the future. A business credit card is often the easiest way to jumpstart your business credit.
- You want to have a higher credit limit for business spending. Business credit cards usually have much higher credit limits than personal credit cards. This gives you additional purchasing power without having to constantly make payments on your credit card to free up available credit. Make sure your business income can handle the responsibility of a higher credit limit.
- You need a way to keep your business expenses separate from your personal expenses. Comingling business and personal funds makes your accountant’s job much tougher. If you are your own accountant, you’ll appreciate having your business expenses separated and easily accessible.
- You have employees, contractors, or a partner who needs access to company funds. Each person can have a business credit card with their name on it but linked to your business credit card account. With some business credit cards, you can set spending limits for each individual to prevent them from abusing company funds. Keep in mind that your business will be responsible for any purchases your employees make with the business credit card.
- Your business has lots of expenses that can earn business credit card rewards. You can earn cash rewards to contribute to your bottom line or generate travel rewards that can be used to offset your business travel costs.
Conversely, a business credit card may not be a good choice for you under certain circumstances, such as if:
- You’re a sole proprietor and do not have a large amount of business expenses. If you don’t have a large amount of business spending, a business credit card may not be helpful for your business. It’s unwise to increase your spending simply to justify having a business credit card. When the need for a credit card arises, you can reassess your decision to get a business credit card at that time.
- You don’t believe it’s necessary to build business credit for your business. Depending on your business goals, your business may never need to have an established credit history.
Business charge card vs. business credit card
One of the biggest decisions to make when you’re choosing a business credit card is whether you want a charge card, which requires you to pay your balance in full each month, or a credit card, which gives you the flexibility to pay your balance over a period of time.
Business charge cards may offer better rewards, but can charge high interest rates if you don’t pay your full balance on the due date each month.
Business credit cards often have competitive interest rates and some level of rewards with the convenience of being able to make monthly payments on your credit card balance.
While a credit card gives you the flexibility to pay off your debt over time, a charge card forces your business to spend only what it can afford to pay off in one month’s time. A charge card allows your business to avoid taking on too much debt. Some businesses may find it more convenient to choose a business credit card and simple pay the balance in full each month. That way, you have the option of carrying a balance when you need to.Back to top
Business credit cards and credit ratings
One of the main concerns regarding business credit cards is how to establish personal credit. The first thing you should do when trying to establish your business credit is ensuring that all payments made your various vendors are being reported to the credit agencies. Without any business credit, you will be using your personal credit to secure any business debt. Keep your business and personal finances separate will help reduce any personal credit risk.
Considering that most cards require personal guarantees, it’s nearly impossible to completely cut out any personal liability. Use this to your advantage to improve both your business and personal credit scores. Keep in mind that if you miss a payment or use to much of your available credit, that would hurt both credit scores as well.Back to top
How to compare a business credit card
There are many factors to consider as you choose a credit card for your business. Weigh these issues carefully to choose the right business credit card the first time around.
Annual fee. The annual fee may be an acceptable cost of having a business credit card if the perks are worth it. Annual fee on business credit cards in the US can be as high as $450, though some credit cards waive the fee in the first year. Compare credit cards based on the annual fee, but also consider the other benefits the credit card provides. Just because a credit card has a high annual fee doesn’t mean it’s not the right credit card for your business.
APR. The annual percentage rate, or APR, is most important on credit cards when you don’t pay your balance in full each month. Higher APRs mean that you’ll pay more interest on your balance. Lower interest rates allow to you minimize the cost of borrowing money using a credit card.
Promotional interest rate. An introductory promotional interest rate gives you a chance to make interest-free purchases or transfer a balance and avoid paying interest for a certain number of months. Pay close attention to the terms of the interest rate promotion to decide whether it’s something that benefits your business. Note that since consumer credit card laws do not apply to business credit cards, there is no legal requirement for promotional rates to last a certain amount of time.
Rewards. As with personal credit cards, the rewards can be in the form of cash back, miles, or points. The credit card may higher rewards in certain categories, like office supplies or travel. Choose the business credit card that pays the most rewards in the categories that you spend.
Foreign transaction fees. If you plan to use your business credit card during international travel or you will use your credit card for making purchases with companies outside the US, foreign transaction fees can add up. A business credit card with no foreign transaction fee is ideal because it allows you to completely avoid this expense.
Signup bonus. Many business rewards credit cards offer a generous signup bonus that pays a lump sum of rewards if you meet spending requirements. Consider whether your business spends enough to earn the sign up bonus. Otherwise, choosing a credit card with other perks is likely a better option.
Premium benefits. Rewards aren’t the only perks that business credit cards offer. You can get access to priority airline boarding, waived checked bag fees, and other benefits. Carefully review the benefits offered by the business credit card and evaluate whether your business can take advantage of those benefits.
Read the fine print. The business credit card agreement is a contract between you and the credit card issuer. You should read and understand it like any other business contract. If there are terms you don’t agree to and can’t avoid, consider a different business credit card.Back to top
Applying for a business credit card
Applying for a business credit card is not much different from applying from a personal credit card. You may have to provide additional information, but the process is fairly straightforward and not nearly as complicated as applying for a business loan.
If you are a sole proprietor – that is a person who owns and runs the business – you can still apply for a business credit card, but remember that you are personally liable for your business debts. That’s because you and the business are the same. As a sole proprietor, when you apply for a business credit card, the credit card issuer will use your personal credit and income information to make a decision about your application.
Step 1: Select the best business credit card for your business
Review and compare business credit cards based on the cost and terms of the credit card and your business needs.
Step 2: Complete the credit card application
The specific information required will vary by credit card issuer, but in general, you’ll have to provide:
- Legal name for your business (even if you do business under your own name)
- Number of years the business has been active
- Business address and phone number (if they’re different from your home address and phone number)
- Number of employees
- Line of business
- Annual business revenue (be truthful in this answer, as falsifying your income can constitute illegal credit card fraud)
- Tax identification number (unless your business is a sole proprietorship and you do not have a tax ID number)
Step 3: Provide any necessary business documents
To completely process your application, the credit card issuer may ask for one or more documents to verify your business. This may include business bank statements, business licenses, or utility bills.
Step 4: Get the credit card issuer’s decision and start spending
Once you’re approved and you receive your business credit card, call the credit card issuer to activate the card and you’re free to start spending. Always keep up with your credit limit, especially if there’s a fee for exceeding the limit. Review your billing statements each month and make your credit card payments on time to keep your account in good standing with the credit card issuer.Back to top
Getting a business credit card with no personal guarantee
In your hunt for a new business credit card, you may be surprised to realize that it can be quite difficult to get approved without a personal guarantee. A personal guarantee, or a co-signer, is a type of collateral for the bank because the co-signer guarantees payments will be made in the event of you defaulting on the account. While it can be difficult to get a business credit card without a personal guarantee, it is possible and here’s a couple of ways to go about it.
- Request removal from personal guarantee. If you have an excellent business credit rating and you’ve been making timely payments to your existing account, you can request to be released from a personal guarantee on the grounds that it is no longer needed for the account.
- Meet the requirements of a no personal guarantee card. If you can meet certain eligibility requirements, such as having $1 million or more in annual sales, you can get approved for a business credit card with no personal guarantee from the start.
A business credit card with no personal guarantee is a very sought after commodity. A very important thing to remember is that obtaining one is entirely based on your ability to prove to the bank that there would be no increased risk of nonpayment if there wasn’t a co-signer on the account.Back to top
What to watch out for
Choosing a business credit card isn’t a decision you can take lightly. If you select the wrong business credit card, it could mean disaster for your business finances, and even your personal credit in some cases. Here are some things to watch out for with business credit cards.
Paying interest is an additional business cost. With your personal credit card, you probably don’t pay much attention to the amount of interest you pay. However, with a business credit card, interest is an item that you need to account for in your financial documents.
Business credit cards aren’t covered by the Credit CARD Act. One of the biggest consumer protection laws doesn’t apply to business credit cards. Among those protections are the restrictions on interest rate increases which means card issuer can change the credit card rate often and without notifying you in advance of the rate increase. Business credit cards also aren’t subject to the $25 late fee cap.
Positive payments may not appear on your credit report. Credit reporting with business credit cards varies, with some credit card issuers reporting both positive and negative account details and others reporting only negative details like missed payments.
Your personal credit score is required, too. Even though you’re applying for a business credit card, most credit card issuers will also ask for the personal social security number of the person using the credit card. If you have a bad personal credit history, your application for a business credit card can be denied.
Personal liability. Since most business credit cards require a personal guaranty, you are on the hook for the credit card payments if your business cannot afford to repay the balance.
Avoid applying for too many business credit cards. The more credit cards you have, the easier it is for your business to get into debt. Since you may be personally liable for your business debts, it’s important that you take precautions not to overextend your business by taking on more credit cards than your business needs.Back to top
Frequently asked questions
What is a collateral deposit?
A collateral deposit is money put up front by you in order to secure your business credit card.
Will my collateral deposit earn interest?
No, these funds are solely to secure your card.
Is interest on business credit cards tax deductible?
Yes, but only if the card is used exclusively for business purposes. Any charges made towards personal expenses are not deductible.
What is the difference between a business credit card and a corporate credit card?
While the terms are often used interchangeably and both card function exactly the same, the main differentiator is the size of the business. Smaller businesses with 500 employees or less would get a business credit card, and larger companies would get a corporate credit card.