If you’re an entrepreneur or business owner who’s new to the world of credit cards, you might be wondering what a business credit card is exactly and how it can help you.
Like personal credit cards, business cards provide benefits like valuable earnings rates, user-friendly perks and 0% introductory annual percentage rates. When used responsibly, they can greatly complement your business’ financial strategy.
Keep reading to learn more about business credit cards and how they work.
What is a business credit card?
A business credit card is a credit card aimed at both large companies and small-business owners, usually offering benefits that specifically cater to businesses. Compared to personal credit cards, business cards usually have higher credit limits, increased potential for rewards, the ability to issue employee cards and useful tools for managing and monitoring business expenses.
Business credit cards can help you pay off fixed expenses, such as rent and utilities, plus navigate fluctuations in cash flow or seasonal requirements — all while keeping your business and personal finances separate and distinct.
Related: How to get a business credit card
How business cards work
In some ways, business credit cards are similar to personal credit cards. With both types of cards, users make purchases using their cards that are charged to a line of credit. At the end of each billing cycle, cardholders receive a statement indicating the total balance owed and the minimum amount due. Paying your bill in full every month exempts you from any interest charges on your purchases.
As opposed to typical credit cards, though, many business cards function as charge cards, which require payment in full each month. The main advantage of charge cards is that they generally don’t have a predefined credit limit.
They may not be the best choice for new businesses with significant startup costs that need to be paid over time or for businesses with irregular income. However, the absence of a spending limit can help established businesses with substantial monthly expenses that are factored into their budget.
While many business cards have no annual fees, there are also premium business cards that offer exceptional sign-up bonuses, rewards and perks.
Business credit card benefits
A business card’s generally higher credit line is valuable for both regular expenses and the unpredictable cash flow situations that often come with running a business. Business cards also allow you to track business spending separately from personal spending. That helps with managing accounts and simplifying tax preparation.
Some business cards provide extended interest-free periods, allowing for longer periods of low or no APR financing beyond the standard 21-day period. This flexibility provides a grace period to pay off balances and supports making business investments.
The best business cards also offer enhanced earnings rates on business expenses, plus business-related perks like free access to business tools and discounts on certain services.
Lastly, business cards allow you to add employees to your account with customized authorizations, enabling you to monitor their spending activity and accumulate rewards on their purchases. Individual credit limits can be set based on their specific roles within the company.
Business credit card drawbacks
To qualify for a business card, a personal guarantee is typically required, which means you’re personally liable for any outstanding debt that your business can’t repay.
Some business cards also come with higher annual fees of hundreds of dollars. While these fees are often justified by the substantial rewards and perks offered, it’s still a consideration when applying.
Know, too, that business cards don’t qualify for the same protections as consumer cards under the Credit Card Accountability Responsibility and Disclosure Act of 2009. Because of this, it’s important to carefully review the terms and conditions of your business card to understand the issuer protections that cover your business.
How do business cards affect your credit?
If you apply for a business card, the card issuer will assess your credit history and credit score to evaluate your creditworthiness, just like with a personal card. Most business cards will come with a personal guarantee that makes individuals liable for any purchases made.
Most business card issuers report your debt to business credit reporting services. Be sure to review your credit card agreement to understand which entities your debts and payments will be reported to, as well as the timing of those reports.
If you’re a small-business owner or an employee looking to augment your company’s savings, a business card is worth looking into. With higher credit limits and business-specific perks, the right card can help your business make a significant dent in its next expenditures report.
The key, of course, is finding the right card for you. For more help with that, check out our list of the very best business cards on the market right now.