Business Credit Cards: Types, Benefits, Costs & More

Learn what business credit cards are, how they work, their benefits, costs, types, eligibility, and key differences from personal and corporate cards for businesses.

What Is a Business Credit Card?

Business credit cards are a type of revolving credit account used for business-related transactions. In many ways, it is similar to a personal credit card except that the card is used for business-related expenses such as office supplies, advertising, travel, software subscriptions, inventory, gasoline, and other business expenses.

Business credit cards will assist in keeping business transactions separate from the personal expenses of an owner. In the United States, the Small Business Administration (SBA) has identified the importance of expense separation and monitoring spending on business cards.

Unlike business loans, credit cards generally offer a revolving credit line. You may take advantage of available credit, repay part or all of your outstanding balance, and again use the available credit as long as the credit card agreement permits.

How Does a Business Credit Card Work?

The basic process is straightforward:

Credit limits get approved by the card issuer.
The card gets used for making qualified business purchases.
Purchases show up on your monthly statement.
Minimum payment as specified on the monthly statement gets made by its due date.
Full payment gets made to not have any interest on purchases in case your card has an introductory interest-free grace period on purchases.
Rewards, points, miles, or cash back get earned through the card rewards program.

As interest rates, fees, rewards, grace periods, and approval criteria vary between card issuers, the complete details of each card need to be considered by the business owner and not the rewards alone.

What Are the Different Types of Business Credit Cards Available?

There are different categories of business credit cards, enabling the owner to select one according to their needs regarding spending habits, cash flow, rewards, and traveling.

0% Interest on Purchases

There are some business credit cards that have a special introductory period of 0% interest on certain purchases, which will help businesses save on interest payments during the promotional period.

Cashback Rewards

Cashback business credit cards give cash back on certain purchases, which is useful for those businesses that require regular purchasing of supplies, advertisements, fuel, and service.

Air Miles

Air miles business credit cards give air miles on eligible purchases, which can be converted into something useful like a free flight, upgrades, hotel accommodation, and much more.

Travel-Friendly Cards

Travel-friendly credit cards are made specifically for businesses that do a lot of traveling, as they have benefits like travel rewards, airport benefits, insurance, and lower foreign transaction fees.

What Are the Benefits of a Business Credit Card?

Some of the many benefits that business owners may gain from having a business credit card include improved expense management, rewards, flexibility, and financial organisation.

Higher Credit Limits

Some business credit cards might be issued with high credit limits compared to personal credit cards, which allows companies to have more purchasing flexibility related to inventory, marketing, traveling, supplies, and other expenses.

Rewards for Business-Related Spending

Some business credit cards may offer rewards in the form of cash-back, points, and miles when businesspeople use those credit cards for their eligible purchases.

Business Perks

Some business credit cards may offer some benefits and perks, including travel benefits, purchase protection, warranty extensions, discounts, airport access, and other expense management services for qualified businesses.

Employee Cards

Business owners may issue cards for their employees’ purchases, which will make purchases more convenient while being able to control the transactions of those employees.

Build a Business Credit Score

Getting a business credit card and using it responsibly can also help build business credit, depending on how often credit card issuers report the information about it.

Separate Business Expenses From Personal

Having a specific business credit card may help separate company purchases from personal expenses, which would improve financial and bookkeeping organization.

Business Credit Card vs. Business Charge Card

The two are often misunderstood. A credit card allows the consumer to maintain a balance from one month to another and at interest. On the other hand, a charge card needs the whole balance to be cleared at the end of the month. It doesn’t come with a pre-established spending limit but comes with very high penalties if payment isn’t made.

Business Credit Card vs. Corporate Card

A corporate card is a type of plastic that is only suitable for bigger companies that have been in operation for some time. This is because a corporate card comes with tighter control measures, as well as centralization of the billing process and liabilities belonging to the company and not the guarantor of such a card.

Who Can Qualify for a Business Credit Card?

You do not necessarily have to be running a big corporation to qualify for a business credit card. Applicants that qualify include:

Individual sole proprietors or freelancers doing business in your name
Independent contractors
LLC, partnership, and S-Corp companies
Companies and corporations
Startup companies without an income history, although your chances of getting approved might be slim

The factors considered by credit card issuers will include your individual credit score, the income of your business, duration of existence, and total debts. The reason why most small business cards depend on your personal credit score is that a personal guarantee is necessary.

Cons of Business Credit Cards

Personal Liability: Personal guarantee may be a requirement for some business credit cards, implying that you as the owner may incur personal liability in the event your business is unable to pay back the money owed on the credit card.
Interest Rates: Some business credit cards may have high interest rates, and having an outstanding balance for a few months may increase borrowing expenses and reduce cash flow from your business.
Annual Fees: Certain business credit cards have annual fees that are charged for rewards, travel perks, expense management, and more. These fees can diminish the value proposition for smaller businesses.

Can a Small Business Get a Business Credit Card?

Yes, there are a lot of credit cards for business that are geared toward small businesses. A small business may be defined as either a one-person business, a freelance business, an online business, or any conventional local business. Nevertheless, not all businesses qualify.

If you choose to be an individual business owner, the application process might include your own personal information along with information regarding your business activities. Before making any application, ensure that you are eligible for the issuer and provide accurate information.

What Are the Costs of Business Credit Cards?

Business credit cards might have various cost components. You should always go through the terms before you apply for the card. Some of the cost elements are:

Annual fees
Interest charges
Late-payment fees
Foreign transaction fees
Cash advance fees
Balance transfer fees
Employee card fees
Other account or service charges

A card that looks like it offers good incentives could end up being expensive if the annual fee is high and you always have a balance on your account.

Conclusion

Business credit cards can assist businesses in managing their expenses, keeping track of personal and corporate expenses, earning points, and organizing finances. Nevertheless, the fees, interest rates, personal guarantees, and repayment requirements have to be considered carefully. No matter whether you are a freelancer, a start-up company, or an already established firm, compare the features of various cards and select the one that suits you and your financial habits.