What Is a Business Credit Card? 8 Things to Know

Trying to decide between a business credit card or personal card? Here’s what you need to know.
7 minute read | 10/3/19Oct. 3, 2019
Female entrepreneur smiling in her office

Starting a business can be exciting and scary — all at once. One of the most important pieces to figure out is how to manage your finances. A business credit card can help you handle various aspects of your finances, including helping you manage cash flow and even earn rewards for your business spending.

When deciding between a business credit card vs. personal card, however, it’s important to understand what you’re getting into and to have a plan. Here’s what you need to know.

Business credit card vs. personal card: The basics

“There are two types of business cards, small business and corporate,” says Gerri Detweiler, the Education Director for Nav, a business credit education provider. “Small business cards are typically what owners get until they have a couple million in revenue each year.”

In general, it’s best practice to confine business purchases to your business card, according to Detweiler. You can make business purchases like equipment, office supplies, business travel, client entertainment costs, and pay for business services, like internet and utilities, using your business credit card. She says you can put business expenses on a personal card, but if you do so, it’s best to isolate one card and use it entirely for business costs.

When getting a small business card, explains Detweiler, you’re likely to still need a personal guaranty, but you’re still establishing a separate account for your business, allowing you to begin building business credit. A corporate card is entirely separate from your personal assets, and you rarely need a personal credit check. However, a corporate card is harder to get unless your business is a substantial size.

A personal credit card, on the other hand, is entirely connected to your personal finances. Your credit is checked, and everything about using it implies that you’re using it for personal expenses and not for business costs. Additionally, your account activity is reported to your personal credit report.

“A number of small business credit cards won’t even report late payments and credit limits to your personal credit report,” says Detweiler. “Unless you default completely, your small business card remains separate.”

8 things to know about business credit cards

Before you decide on a business credit card, there are a few things you need to know. While small business credit cards can be a great tool, it’s important to learn the ins and outs before you move forward. Here are several things to consider.

1. It may be easier to qualify for a business card than you think

“Many people are surprised at how easy it is to qualify for a small business credit card,” says Detweiler. “Your personal credit score will be used to determine your eligibility for the card, so the fact you don’t have any business credit yet doesn’t matter.”

If you’re a freelancer, rideshare driver, own a website, sell crafts on Etsy, or do any number of things to make money, it’s possible for you to set up as a small business. The size of your business doesn’t matter — you can apply for a card if you’re the only person on payroll.

When applying for a small business credit card, says Eric Nisall, a small business expert and tax professional, it’s important to use your business name and the Employer Identification Number (EIN) assigned by the IRS. (It’s also possible for you to use your Social Security number if you don’t have an EIN.)

You don’t need a formally registered business to qualify for a card, since a sole proprietorship doesn’t require any formal registration. However, Nisall suggests getting an EIN so you can move toward separating your business entity from your personal assets.

2. It can simplify your record-keeping

Nisall also points out that having a small business credit card instead of a personal card makes it much easier to prepare your taxes at the end of the year.

“The most important thing you can do is really treat your business as a separate entity as much as you can,” Nisall says. “When you have a business card used only for business expenses, it’s easy to turn it over to your accountant or even prepare your own taxes.”

Plus, Nisall continues, the interest you pay on business loans is tax deductible. If you have to carry a balance on your business credit card, you can deduct the interest much easier.

“When you use a personal credit card for business expenses, it’s harder to prove to the IRS that you deserve a business interest tax deduction,” he says.

3. You could earn rewards that help your business

A good small business credit card often comes with solid rewards that can help your business. Depending on your business needs, different cards might make sense.

For example, if you’re interested in cash back, the Capital One® Spark® Cash for Business offers 2% cash back on all your purchases. So no matter what you buy, you can earn cash back — money that can be re-invested in your business.

The Ink Business Preferred Credit Card, on the other hand, offers higher rewards when you pay for telecommunications costs and social media advertising with your card. Both have annual fees, but with the right approach, paying the fee could still be worth it.

“You can find a low-fee rewards card to meet your needs in business,” says Nisall. “It’s less messy to keep it separate, and you can get the benefits of a rewards card.”

4. Your credit limit will probably be higher

“Business credit cards often come with higher initial limits than personal cards,” says Detweiler. “They understand that business owners need to make bigger purchases.”

However, your credit limit will still be based, to some degree, on your personal credit score and income, Detweiler points out. So while you might see a higher credit limit with a business card, it might not be as high as you like if your personal finances aren’t quite up to scratch.

5. You might not have the same consumer protections

Detweiler points out that small business cards are excluded from the Credit CARD Act of 2009, which protects credit card users from predatory practices. So while personal credit cards have certain protections, small business cards don’t have to follow the same rules.

“Small business cards can charge higher fees and increase your APR without notice,” says Detweiler. “While some small business cards have voluntarily adopted protections like ending double-cycle billing, you might still run into other problems. Carefully read the fine print.”

6. You can build business credit

When deciding between a small business credit card vs. a personal card, it’s important to consider the value of building credit for your business, according to Detweiler.

“While you can get a small business credit card without established business credit, it’s much harder to get a small business loan if you want to expand your business without some type of credit,” says Detweiler. “Your credit card can help you build that credit.”

As you make on-time payments, your business credit card information is reported to the business reporting agencies, including Experian, Equifax, and Dun & Bradstreet. Detweiler points out that these reporting agencies require you to sign up for an account and confirm your business information with each so it can be used to create a risk profile for your business.

Your business credit card can help you build a separate reputation for your business — which can then be used with banks and other lenders if you need additional capital later.

7. Your business card could affect your personal credit

For the most part, says Detweiler, your small business credit card won’t normally show up on your personal credit report — unless you make a big mistake.

“Most small business creditors just report to the business credit bureaus, and small things like late payments won’t show up on your personal report,” says Detweiler. “But if you default, that’s when it could impact your personal credit report.”

8. Your personal assets could still be at risk

One of the reasons to get a separate small business credit card over a personal card, Nisall points out, is to separate your personal assets from your business assets. However, that separation might not be as complete as you’d like.

“Even if you have a separate entity, such as an LLC, you’re still making a personal guaranty when you apply for a small business credit card,” says Nisall. “So the creditor can come after some of your personal assets.”

However, that doesn’t mean getting a small business credit card is useless. Nisall says that for other liability purposes, a separate account can establish that you have no intention of mingling your accounts, and that can help if someone else decides to sue your business for other reasons.

“Yes, a small business card creditor can still come after your personal finances,” says Nisall, “but keeping things separate as much as possible still increases the distance between your business and personal finances.”

Bottom line

In the end, whether you choose a business credit card or personal card for your business depends on your situation and your needs. However, even with some of the lost consumer protections and other issues, a small business card can be a smart move. You might be able to deduct some of the interest on your taxes, and building business credit could open other doors later.

“No matter what you do, though,” says Detweiler, “you need to designate one card just for business expenses. Choose a card and dedicate it to business expenses.”

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