What is a business credit card?

A business credit card is an accessible credit line for business owners.

Business credit cards and personal credit cards have similar functionalities. However, business credit cards have features that make them suitable for business rather than personal use. Another advantage is that a business card helps you build a business credit profile, which will enable you to borrow funds for your company in the future.

Whether you’re a sole proprietor or a company owner with hundreds of employees, the best business credit cards can simplify transactions and make it easier to access funds for your enterprise. While the specific features of every business card are different, here’s what you need to know to determine if one is right for you.

What is a business credit card?

A business credit card is a card designed specifically for business owners with benefits suited to businesses. The card itself looks just like a personal credit card, but a business credit card typically has different terms and conditions, such as minimum spend requirements for sign-up bonuses, rewards programs, special financing options and annual fees.

When you apply for a business credit card, the application looks similar to a personal credit card application, with some additional information requested. In both cases, you’ll need to provide your name, date of birth, Social Security number and address. The business card application will ask for information related to the business itself, including name of business, industry, employer identification number (if applicable) and revenue.

Most business card issuers allow cardholders to order credit cards for employees, which is helpful for companies with a number of employees going to different places and spending on various orders for the company. In addition, business cards typically come with higher credit limits, greater rewards potential and tools to help manage spending.

We should note that while you may enjoy legal protections if you default on a personal credit card, you are often personally liable for any debts incurred on a business card. Also, business cards do not enjoy the protections granted by the CARD Act of 2009.

How do business credit cards work?

Similar to how personal credit cards work, business credit cards give users a revolving line of credit to tap into to make purchases. This line of credit allows you to charge business expenses up front and pay later.

Your credit limit is determined by a number of factors, including your personal credit score and, if you have one, your business credit score.

Each month you’ll receive a statement from your issuer, which includes a transaction history, your statement balance and a minimum payment amount required. You are required to pay the minimum or else your payment will be recorded as late. After 30 days, it’ll be reported to the credit bureaus and will begin to affect your credit score.

Even if you do pay the minimum, your rest of your outstanding balance will remain and carry over to the next month, accruing interest the more you don’t pay it off. This is why it’s best to pay off your entire balance if you can, to avoid paying more interest and accumulating debt.

Pros and cons of a business credit card

Just like any other credit card on the market, business credit cards have their fair share of benefits and downsides to keep in mind. It’s important to know how to navigate them so that you can pick the best card for your business needs.

Pros

• Better rewards, bonuses and perks for businesses
• Builds business credit
• Higher credit limit potential than a personal card
• No mixing personal and business expenses
• Easy transaction management
• Better record-keeping for tax deductions

Cons

• Exempt from Credit CARD Act protections
• Potentially higher annual fees than personal cards
• Usage can impact your personal credit
• Personal liability

What to consider before getting a business credit card

Business credit cards have other benefits that are not included in personal credit cards. When applying for a business card, issuers take into account the following additional elements that aren’t considered for a personal card:

• Eligibility is based on your personal and your business credit history. Issuers look at both your personal and business credit history to determine if you’re approved for a business credit card and what terms you qualify for. While responsible past use of credit will impact your chances the most, be sure the three main credit bureaus (Experian, TransUnion and Equifax) and business credit bureaus such as Dun & Bradstreet, Experian Business Credit and Equifax Small Business have accurate information.
• You’ll need to provide information about your business. Credit card issuers may ask you for your business name and address, EIN, when your business was started, how much revenue it generates and what type of industry you are in. As the business owner, you may also be required to provide personal information such as your household income, Social Security number and personal address.
• You may or may not be personally liable for debts. The person or entity who is liable for debts depends on what type of liability the card offers. If it has commercial liability, you and your business are liable for all debts. But if it has joint and several liability, you and your business are both responsible. Know your rights and responsibilities before signing on the dotted line.
• Customizable options for employee cards. Many business cards allow you to give employees their own cards, for free, which basically makes them authorized users on the account. You can easily oversee their spending because these cards often come with customizable user privileges, like setting customized credit limits on each employee card.
• Access to business-centric perks. Business credit cards tend to have rewards that are more suited for businesses than for individuals. Depending on the card, business owners can earn rewards at office supply stores, gas stations, restaurants and on purchases like airline tickets and technology.
• Payment terms can be tailored for businesses. Card issuers often provide business friendly payment terms like an extended payment option, which enables business owners to finance large purchases over time with different terms from those for routine purchases. However, payment terms might vary. For example, balances on business charge cards are typically due in 30 days, while balances on unsecured business credit cards aren’t due as long as you make a minimum payment.

Bottom line

If you’re serious about your business, getting a business credit card is a good idea if you want to seamlessly separate your personal and business expenses and build up your business credit score. Plus, a business card provides a higher line of credit, streamlines employee expenses, earns rewards, offers protections and provides management tools.

Use your business credit card responsibly in order to maximize all the benefits that it can offer you. And of course, take the time to choose a business credit card that suits your business needs.