Business credit cards

A business credit card is a type of debt financing. A business and its owners are given a set limit of money they can borrow. The business owners can use funds on an as-needed basis and agree to pay them back on a pre-defined schedule. By having a separate business credit card from a personal credit card, the business owner can have an easier time tracking expenses for accounting and tax purposes.

A business credit card also gives you the ability to allow multiple people in your organization access to funds. With the right system and permissions in place, the accounting team can track the spending easily. This frees up the main cardholders to make decisions that keep their departments, teams, and projects running smoothly without needing to provide sign-off for each purchase.

In addition to being a flexible way to finance business operations, having a business credit card helps to build your business credit score, which makes it easier to get small business loans, lines of credit, and other forms of financing because your company is able to show fiscal responsibility by making payments on time.

Business credit cards work by having a financial institution like a bank, credit union, or other lender provide the company with a set amount of money they can use on an as-needed basis. The business owner will need to read the terms and conditions of the agreement carefully and make sure they’re okay with the annual fees, interest rates, perks that may come with the card, and payback periods before accepting the terms of the card.

At the end of the month or whatever payment cycle is defined by the business credit card agreement, the company pays back the minimum or total amount owed. If the minimum payment threshold is not met, or if there is a remaining balance, the company that is borrowing the money will need to make an interest payment on the balance owed. Some business credit cards also come with annual fees, so a business owner needs to plan the additional expense when doing their financial planning.

In addition to making it easy for short-term or immediate purchases, business credit cards have multiple benefits over other types of financing for a company including: 

• Simple expense management
• Rewards
• Easy approvals for financing
• Building business credit
• Purchase protection
• Concierge services

Each provider will offer different benefits and at different rates, which is why a business credit card cash back program may be the best for one company owner, but it may not make sense for another who has steady cash flows but travels more frequently for tradeshows.

One business credit card could come with a concierge service and cash back, but the interest rates and annual fees are higher. If you have an assistant, you likely don’t need the concierge. In this case, a business credit card that offers better rates and travel rewards may be better if you’re always on the road.

Here’s some more information on the benefits so you can better determine which ones make sense for your business needs. And, as your needs change, you can always move to a different card with different benefits.

Manage expenses
Having a business credit card makes it easy for solopreneurs, small businesses, and large corporations to keep business and personal expenses separate. Accountants and bookkeepers will have an easier time calculating deductions and filing taxes, while also finding ways to eliminate waste. When personal and business expenses are mixed, some deductions may get lost as they could be seen as personal expenses. So, another benefit here is having less taxable business income. Businesses with multiple cardholders will improve efficiency by allowing trusted team members to have a business credit card connected to their main account. This lets them make the decisions for their team rather than needing to get every purchase approved beforehand.

Business owners and finance teams can also use the transaction reports to see the team’s expenses in a clean and easy list, which helps to streamline ways to save money when there are unnecessary purchases being made. 

Earn rewards
Business credit cards offer multiple rewards and perks that can be reinvested into the company and build team enthusiasm including: 

• Cash back
• Travel points
• Loyalty and status upgrades
• Club access at airports, stadiums, hotels, and entertainment venues
• Introductory 0% interest rate for a short period of time

There are different credit cards to suit different business needs. For example, if your business has irregular cash flow, a card with flexible repayment terms and cash back could be best suited for your needs, so that you don’t have to worry as much about spiking interest rates when you’re in a slow season.

If you travel frequently for business, finding a card with great travel rewards, lounge access, and free hotel upgrades as an alternative to cash back could benefit you.

Streamline financing
Business cards are flexible for any business at any stage. Start-ups or side hustles can easily qualify for a business credit card without established revenue, and large corporations can track expenses and not have to micromanage every purchase, freeing up the leadership to focus on their jobs.

Build business credit
 Having established business credit helps your business qualify for financing opportunities. When applying for a loan, line of credit, or other financing, lenders typically want to evaluate your business’s credit score. Making regular, timely payments and keeping the balance below 30% of your available credit helps build your business credit score.

Purchase protection
When you pay for purchases in cash, you’re subject to the vendor being honest and giving you a refund if there’s an issue. By using a business credit card, if the service is not delivered or is unsatisfactory, the company that issued the credit card can help you recover the losses. They may hold payments and refund you, work to mitigate and get you a partial refund, or cover the entire cost and apply a credit back to your account.

Being covered when you need financing fast
Having a business credit card gives you access to cash for immediate and short-term expenses when you cannot wait for a loan, a merchant cash advance, or other types of financing. This includes purchasing inventory when you’re selling out fast, buying raw materials in bulk when they go on sale, repairing a piece of equipment, and covering expenses like paying vendors while you wait for accounts receivable to come in.

Concierge services
For solopreneurs, leadership professionals, and owners who don’t quite need an executive assistant yet, concierge services come in handy. The concierge can help shop for gifts, book hotels and flights, and even make dinner reservations. The annual fees may be less than a salary, making it perfect if you’re not ready to hire a full-time employee but need the assistance.

While the perks like travel and cash back are nice, and the streamlined financing that comes with a business card is great for operations, there’s a few things to keep in mind before you apply.

Personal guarantee
If your company does not meet the minimum requirements needed for credit scoring, you’ll likely be asked to make a personal guarantee. The personal guarantee means you’ll be responsible for making payments from your personal assets if the business defaults.

Fewer protections than consumer credit cards
While there are numerous legal protections for personal credit cards, business credit cards may not have certain protections (i.e., with rate hikes and limits on penalty fees). This is because business credit cards are not covered under the Credit Card Act of 2009 or the Fair Credit Billing Act (FCBA). While some credit card issuers voluntarily extend those protections to their card users, business owners should check the card’s agreement before making assumptions and ask what protections are available.

Cards can be misused
Credit cards can be stolen, employees may misuse their company cards, and you may be on the hook to cover the costs. Unlike a business loan where the money stays in your account, multiple people can have access to the card, and they could use it for non-business purposes.

Each card provider will have different policies and regulations for such situations, so make sure to read the policies and ask about them once you know the card you want to apply for.

While requirements will vary by issuer, you can assume you’ll need the following requirements to qualify for a business credit card:

Personal information

• Your credit score will typically need to be at least “good credit” (generally a FICO score of 690 or higher) to qualify for a business credit card.
• You’ll need to provide details like your SSN, address, email, and phone number.
• You’ll be asked for your annual income (include all income, not just what you make from your business).

Business information
While you need a business to apply for a business credit card, you don’t necessarily need a formal business entity or history of business to qualify. Start-ups without proof of revenue or hobbies that occasionally bring in revenue can apply for a business credit card. You’ll likely be asked for the following: 

• Contact information for your business
• Time in business
• Number of employees
• Business category, type, and structure
• Choose what most closely aligns with your business.
• Federal tax ID or EIN
• Business revenue and expenses
• Include an estimate of how much you anticipate charging to the card each month.