Written by Reginald Chan on April 30, 2021

What Is a Business Credit Card and How It Works?

Business credit cards provide financial support to businesses in almost all industries. These credit cards work pretty much like personal cards except for a few differences. 

The cards give you a line of credit that increases your purchasing power, making it easier for you to meet your company’s financial needs. The cards can be used at different points of sale, but they do have a credit limit, just like with personal credit cards.

Like other credit cards in the market, business credit card bills must be cleared on time and in full. Failure to do so attracts interest charges, late fees, and other penalties. 

On a brighter note, proper use of a business credit card will improve your company’s credit rating and attract several perks and rewards. The perks vary from one issuer to the next, so you may want to shop around and find the card that gives your business the best value.

What’s the Difference Between Business and Personal Credit Cards?

The most obvious difference between a business credit card and a consumer card is a simple fact that business cards are meant to support a company’s financial obligations and not personal needs.

The truth is that the issuer may have a hard time determining whether a particular charge was for your business or consumer expenses. However, if you use a credit card for businesses to meet personal needs, your consumer protection reduces significantly. Not to mention the damage it could have on your company’s books. Therefore, it’s in your best interest to avoid using these cards for personal expenses.

Business and personal credit cards also have different reporting policies, and consumer credit card activities are reported to TransUnion, Experian, and Equifax every month. Meanwhile, some business credit card issuers report the credit card performance to commercial credit bureaus only, while others report to both commercial and consumer credit bureaus. 

Small business credit cards have higher credit limits than personal cards. That’s one of several reasons why companies benefit hugely from business credit cards.

What Are the Benefits of Business Credit Cards?

They Are Convenient

Using small business credit cards is fast and easier compared to cash and checkbooks. 

They Enhance Cash Flow

Business credit cards boost the flow of cash in your company. You’ll have a financial cushion even when sales are low, or your account receivables are behind. 

They also keep your business operational by providing funds for inventory and emergency expenses. 

They Offer Incentives

Business credit cards attract incentives like signup bonuses, cashback, miles, shopping discounts, and points. 

Before shopping for a business credit card, you may want to look at your books and see where most of your expenses go. Use this insight to get a credit card whose rewards are in line with your company’s needs. For instance, if a significant chunk of your capital goes towards traveling, a credit card with miles incentives may be a better choice than one offering shopping discounts.

They Are Easy to Qualify For

Getting a secured small business credit card can be easier than traditional bank loans. This is especially true if your business doesn’t have an established credit history. 

They Simplify Bookkeeping

These credit cards streamline business expenses in several ways. First, tracking employees’ expenditure is so much easier when everything is done from the credit card and not their consumer cards. Some issuers even give you the option of setting employee credit card spending limits.  

If you are issuing the business card to an employee, make sure they’re well aware of the necessary measures to take to prevent business credit card fraud, everyone should be careful with that.

Issuers also provide monthly statements, quarterly/annual summaries, and additional record-keeping tools. This makes it easier to track your company’s spending pattern and simplifies auditing and payment of taxes. 

They Improve Your Company Credit Rating

Small-business credit cards can build your company’s credit, improving your eligibility for lines of credit, bank loans, and other corporate credit cards that have higher limits and lower charges and interest rates. This can be achieved by using the card within the set limit and clearing the balances on time.

Drawbacks of Business Credit Cards

They Are Expensive

Business credit cards have higher interest rates than most bank loans and fixed lines of credit. Penalties like late fees are also steep.

Interest Rates Fluctuate

Issuers can adjust the interest based on several factors like how you’re using your account.

They Come With Less Protection

The protection on small business credit cards is nowhere as comprehensive as with consumer cards. Go through the fine print and check the level of protection offered before applying for the card.

They May Require Personal Legal Liability

Some small business credit cards will require your personal security, meaning the card’s activities can negatively affect your personal credit rating.

You will find small business cards very useful if your business needs steady cash flow, streamlined expenses, and more purchasing power. They do come with a few drawbacks but, in most cases, the benefits outweigh the cons.

Article written by Reginald Chan
A meticulous entrepreneur by nature and a serial entrepreneur. Founded a few awesome startups including Marketing Lancers, WP Maven and TheMarketingHuddle.com. Reginald is a sought-after success coach, digital marketing consultant and TEDx speaker from Asia. Currently, he teaches others how to make money online for free.

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