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Business Credit Cards 101: Understanding the Basics

Kamel LoveJoy

Kamel LoveJoy About The Author

Jun 25, 2024 5:30:00 AM

Are you starting a small business or thinking about managing your business expenses better? You might have heard about business credit cards, but how do they differ from regular consumer credit cards? Why would you need one, and what are the benefits? Let’s break it down.

Business Credit Cards 101 - business shirt holding a business credit cardWhat Is a Business Credit Card and How Is It Different?

Consumer Credit Cards: People use consumer credit cards to borrow money from banks or credit card companies to buy things. Cardholders must pay back the loan with interest over time. These cards are issued by banks, stores, and other financial institutions.

Business Credit Cards:  So what is a business credit card? Well it is similar to a consumer cards but for businesses. These are specifically designed for business expenses. Unlike consumer credit cards used for personal purchases, business credit cards help keep business expenses separate from personal ones. This makes managing business finances easier and provides benefits tailored to business needs, like higher credit limits, expense tracking tools, and bonus point on office supply stores purchases.

Example: If you own a small graphic design business, using a business credit card helps you manage your expenses better than using a personal credit card. All your business expenses are in one place, making accounting simpler. Imagine one account opening can save you a major headache come tax season. And you win big when it come to getting cash back on net purchases and gas stations. 

Why Use a Business Credit Card?

Using a business credit card offers several advantages over a personal credit card for business expenses:

  1. Separation of Expenses: Keeping personal and business finances separate is crucial.  You can use business credit cards to track expenses. When you receive your statement, you know every transaction is business-related, eliminating the need to sort through mixed expenses. This is especially helpful when it comes to employee cards. 

  2. Build Business Credit:  For those establishing business credit for the first time please understand the business advantages. If done correctly, your business is seen as its own person, meaning it has its own credit score, card accounts, and protections. Using your business credit card responsibly—paying your bills on time based on the billing cycle and paying more than the minimum payment—helps build a positive credit report for your business. This makes it easier to get loans or lines of credit at lower interest rates in the future.

  3. Rewards and Perks: Business credit cards often offer preferred rewards and perks tailored to common business expenses, such as discounts on office supplies, travel rewards, and cash back in the form of statement credit on business purchases.

Example: Suppose you run a small consulting firm. By using your business credit card for everyday expenses, you can earn cash rewards, gift cards, or travel points, saving money in the long run. Some business cards even give free employee cards. Not to mention the cash flow flexibility, instead of using your business checking account or savings account you can use your credit account until you get the sales needed.  

What Are the Benefits of a Business Credit Card?

Understanding Business Credit Cards - Business man being handed a credit card

What are the advantages of a business credit card:

  1. Easier Qualification: If your business lacks a strong credit history, qualifying for a traditional business loan can be tough. However, you can often qualify for a business credit card more easily. For instance, if you’ve just started a small bakery, you might still get a business credit card to help manage your expenses.

  1. Convenience: Imagine you run a small photography business. Instead of carrying cash or writing checks for equipment, you use your business credit card for quick transactions. This saves time and hassle, letting you focus more on your work. There are also apps that have spending controls, further helping your business.

  1. Online Ease: Let's say you own an online clothing store. You frequently purchase materials from various suppliers online. Using a business credit card streamlines these transactions, providing a secure and efficient way to pay online.

  1. Financial Bookkeeping Assistance: If you’re a freelance graphic designer, keeping track of all expenses can be overwhelming. With a business credit card, you get detailed monthly statements and can use online tools to manage expenses. This simplifies bookkeeping, especially at tax time or during audits.

  2. Rewards and Incentives: So should why small-business owners should use rewards cards? Suppose you run a small consulting firm. Using your business credit card for everyday expenses can earn rewards points like cash back, bonus miles, or discounts on office supplies. If your card offers 2% cash back on all purchases, spending $1,000 in a month earns you $20 back.

  3. Tool to Build Credit: Starting a tech startup? Having a good business credit score is crucial for future funding. Using your business credit card responsibly helps build a positive credit history, making it easier to qualify for larger loans or lines of credit at lower interest rates.

What Are the Downsides of a Business Credit Card?

Understanding Business Credit Cards - woman having a business card headacheWhile business credit cards offer many benefits, there are potential downsides:

  1. Personal Liability: Many business credit cards require a personal guarantee, meaning you’re personally liable for the debt.

  2. Higher Interest Rates: Business credit cards may have higher interest rates compared to some personal credit cards.

  3. Annual Fees: Some business credit cards come with annual fees, adding to your business expenses.

  4. Approval Requirements: It might be harder to get approved for a business credit card if your business is new or lacks a strong credit history.

How to Apply for a Business Credit Card

Here’s how to apply for a business credit card:

  1. Research Options: You want to shop for the best business credit cards to find one that suits your business needs.

  2. Gather Documentation: You’ll need your business’s legal name, tax ID number (or Social Security number if you’re a sole proprietor), income information, and other business details.

  3. Complete the Application: Fill out the application form with all required information.

  4. Wait for Approval: The issuer will review your application and decide whether to approve or deny it. This process can take a few days to a couple of weeks.

Suppose you run a small online store selling handmade jewelry. You apply for a business credit card using your Social Security number and provide details about your business. After a brief approval process, you get your business credit card, which you use to purchase supplies, manage expenses, even some business dining purchases.

Can I Get a Business Credit Card if I’m Just Starting Out?

Yes, you can get a business credit card even if you’re a sole proprietor and just starting out. Many business credit card issuers offer business cards to freelancers, gig workers, or small home businesses. Here’s what you need to know:

  1. Use Your Social Security Number: If you don’t have a business tax ID, you can use your Social Security number on the application.

  2. Personal Guarantee: Be prepared to provide a personal guarantee, meaning you’re personally responsible for the card’s debt.

  3. Business Information: Even if your business is new, provide as much information as possible about your business plans and projected income.

 Imagine you’re starting a small graphic design business. You apply for a business credit card using your Social Security number and provide details about your business. Within a week, you’re approved and now have a card to help manage your business expenses, build credit, and giving you  card statement  credit (cash-back).

So, is a Business Credit Card Worth it? 

The best business credit cards can be a valuable tool for managing your business finances. They offer convenience, financial management benefits, rewards, and opportunities to build business credit. By understanding the differences between business and consumer credit cards and how to apply, you can make informed decisions that benefit your business. If you’re considering a business credit card, take the time to compare options and find one that fits your needs. If your looking for  financial guidance for this type of venture we have experts at First Alliance Credit Union that can help make this financial goal a reality. And remember, using your business credit card responsibly can help your business grow and succeed.

Apply for a Business Credit Card at First Alliance Credit Union.

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We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.