When should you get a business credit card?

Credit cards are an important aspect of American finances—70% of Americans use at least one. Business owners are a key part of this demographic, but their needs and access are a little different than the average consumer. Many small business owners rely on business or corporate credit cards for quick funding and daily operations, but fail to realize all of the benefits of a business-specific card.

In 2017, the Federal Reserve reported that over half of all American small businesses use credit cards as a major piece of their financial strategy. That number was an increase from previous years and the trend has continued, favoring business credit cards over other forms of business financing. Today we’re breaking down what you need to know about business credit cards, the difference between a business card vs. a personal card, and when you should open one to benefit your business.

Business credit card vs. personal

The first distinction we need to make is between a business credit card and a personal card.

Business credit card

• Higher credit limit
• Better rewards
• Less regulated

Personal credit card

• Fixed credit limit
• Generic rewards
• Heavily regulated

Most Americans are familiar with personal credit cards. They’re offered through banks and retailers, may have an annual fee, feature credit limits and annual percentage rates (APR) of interest, and require monthly payments on the balance. A personal card is heavily regulated and offers strong protections against fraud or theft. Rewards points and cash back are typically available, depending on the type of card.

Sometimes referred to as a corporate credit card, a business credit card is specifically designed for businesses. The issuer often allows a higher credit limit and more lucrative welcome bonus and payouts when it comes to rewards. However, they are less regulated, so issues with fraud and changing interest rates can create problems. Finally, there is an entirely separate credit score for a business and it’s affected differently than a personal credit score.

Business credit card requirements

A personal credit card will need the following requirements:

• personal credit history
• proof of income
• and age 18 or older

Interest rates and card eligibility will be determined by the credit card company dependent on your credit report—which will receive a “hard check” upon application.

A business credit card needs the same requirements, but involves a “hard check” on personal and business credit scores. The card issuer or processor (such as Visa or Mastercard) will create further requirements about the types of purchases that are allowed.

When to open a business credit card

You should get a business credit card as soon as you begin making regular, dedicated purchases on behalf of your business. There is no magic benchmark or threshold that recommends you for a business credit card. Any type of business can get a business credit card, even small or part-time entrepreneurs. You don’t need a certain number of employees or even an Employer Identification Number (EIN). All you need are expenses specifically for business purposes.

That being said, there are several indicators that you could benefit from a business credit card, or that you could be better utilizing business credit cards to strengthen your business strategy.

How to use a business credit card

A business credit card can be an easy and convenient way to access financing for short-term needs and increase your company’s purchasing power, but it’s important to know when to use it.

1. When you have business expenses

Businesses that have regular expenses specifically for their daily operations may benefit from the ease and protections of a business credit card. A business credit card will allow you or employees to make the necessary purchases for your business. You might consider a business credit card to pay for:

• Office supplies
• Advertising & marketing costs
• Gas
• Utilities
• Repairs
• Breakroom snacks
• Cleaning
• Memberships

2. To separate business and personal finances

Most small businesses start off using the personal credit of founders. It’s a fine way to get the ball rolling but over time it can become problematic to your personal credit score and your business credit score alike. Separating your business expenses with a business-specific card can also keep things clear for tax time.

3. To finance a large purchase

Small businesses often need to invest in larger purchases for operations and future growth. Instead of getting a loan or when the vendor does not offer favorable financing, business credit cards can offer a good option for these larger purchases. In particular, some business credit cards offer a low- or no-interest introductory rate which can help you finance a large purchase and pay it off before accruing interest. For example, you may buy a new commercial refrigerator or office printer with your business credit card to earn rewards on an eligible purchase and pay off the balance during the introductory rate period.

4. To earn rewards

It costs money to run a business, and you’ll be spending that money either way. A business credit card is one way to spend money and earn some perks while you do it. Depending on how you spend, you could quickly accumulate points, cash back, or perks that could further benefit your business. You might get extra points for shipping goods, or increased cash back on any eligible purchase of office supplies. If you need quick cash, you might also receive a signup bonus from certain card issuers.

5. To build business credit

Business credit scores are different from personal credit scores, but function in a similar way—to indicate how likely you are to pay back borrowed funds. Just like it’s important to develop a healthy credit score, you’ll need a good business credit score to secure favorable financing and grow as a company.

Whether you have bad or no credit for your business, a business credit card can help you improve that credit score so long as you make responsible purchases and pay off the balance.

6. When you travel frequently

There are a wide variety of business credit cards catered toward business travel. Some cards provide rewards and bonus miles for airline travel, while others might provide perks like free auto rental or double cash back for restaurants and takeout. If your business involves travel expenses, it’s time to get a business credit card that maximizes your benefits and offers international spend protection.

7. To manage subscriptions

Most businesses rely on multiple software tools to manage their operations. As your business grows, your subscriptions are likely to grow in number and complexity as well. A business credit card can help you manage and automate your subscriptions—especially if you have the option for virtual cards.

8. To track expenses

As part of your expense management strategy, a business credit card can help compartmentalize expenses for analysis and taxes. If you only use one business credit card for your regular business expenses, your credit card statements will perfectly track all expenses and provide easy bookkeeping.

Other business financing options

In some cases a business credit card isn’t the right option (or even possible) for your business. If you have very poor personal credit, no established credit, or you feel you lack the ability to responsibly use a credit card, there are other options for business financing.

Charge cards

A charge card is similar to a credit card in that it allows you to buy now and pay later. However, unlike credit cards, you can’t carry a balance to the next month. If you have poor or nonexistent credit you may still qualify for a business charge card with a lower balance that must be paid in full by the end of each month.

Secured card

A secured credit card is “secured” by an initial deposit from the user. The deposit is usually between $200-1000 up front, to cover the card issuer in the event that you default on your bill. Many secured cards are specifically marketed for poor credit and will help you repair a bad credit score.

Business line of credit

A line of credit is basically a loan that can be used like a credit card. You can access this money when you need it and only pay back what you borrow, up to the maximum allowed limit. The limits and interest may be more favorable than certain loans or credit cards, but without the bonus points or rewards.

Business loan

Taking out a business loan is also an option for small business owners. A variety of business loans are available to finance growth, real estate, equipment, and more. The Small Business Administration in particular offers loans with very competitive financing, so long as you meet the requirements.

The bottom line

You’re going to spend money as a business, so why not maximize those dollars? You can use a business credit card to make each dollar go a little further with reward points, delayed repayment, and building stronger business credit. Carefully research your options to find the business credit card to meet your unique needs and then go forward with a spending strategy that works for you.