The Benefits of Business Credit Cards for Small Businesses

Updated on:
February 7, 2024

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Applying will not affect your credit score

Small business owners can simplify the financing process and enjoy additional benefits by using a business credit card. These cards are specifically designed to cater to the needs of businesses and come with various perks, rewards, and features that can help save money and manage cash flow.

What are Business Credit Cards?

Business credit cards are specialized credit cards designed for businesses and their unique financial needs. They are issued to business owners or their companies and are intended to be used as a line of credit for business-related expenses such as purchasing inventory, office supplies, and travel expenses. Many businesses apply for a business credit card just as soon as they open a bank account.

Business credit cards can be secured or unsecured, meaning they could require the cardholder to put up collateral. Interest rates vary according to the business’s creditworthiness and the U.S. Prime Rate.

Business credit cards offer several advantages over personal credit cards, including the ability to separate personal and business expenses, higher credit limits, and tailored reward programs focused on business spending categories. They also provide tools and features for tracking and managing expenses, making it easier for businesses to monitor their financial health. Using a small business credit card responsibly can help improve the company’s business credit score, which can be beneficial for securing loans and other forms of business financing in the future.

Business Credit Cards and Your Business Credit

A business credit card helps build your business credit by establishing a credit history for your company, separate from your personal credit. Here’s how it works:

  1. Separate credit profile: A business credit card allows you to create a distinct credit report for your business. By keeping your business expenses separate from personal expenses, you can better manage your finances and demonstrate responsible credit behavior.

  2. Reporting to business credit bureaus: Most business credit card issuers report your account activity to major business credit bureaus, such as Dun & Bradstreet, Experian Business, and Equifax Business. Regular, on-time payments and responsible credit usage will positively impact your business credit score.

  3. Increasing creditworthiness: Your business credit score will improve as you consistently make on-time payments and maintain low credit utilization. A higher business credit score signals to lenders that your business is financially responsible and low-risk, increasing your chances of securing loans and better terms in the future. Particularly when you’re a new business, you want to build that credit as much as possible to make future business loans more affordable.

  4. Higher credit limits: Business credit cards often have higher credit limits than personal credit cards. Managing your business credit card responsibly may make you eligible for higher credit limits over time. This increased credit availability can help with cash flow management and accommodate larger business expenses.

  5. Establishing trade credit: A strong business credit score can also help you establish trade credit with vendors and suppliers. This enables you to obtain goods and services on credit terms, such as net 30 or net 60 days, which can improve your cash flow and financial flexibility.

Other Business Benefits of Credit Cards

Separate Business and Personal Expenses

One of the most significant advantages of having a business credit card is the ability to separate your business expenses from your personal expenses. This separation helps make bookkeeping easier and more organized. Additionally, separating expenses ensures that your personal credit score remains unaffected by your business spending, as your business credit card issuer reports to business credit bureaus rather than consumer credit bureaus.

Enhance Cash Flow Management

Business credit cards can help small business owners manage cash flow more efficiently. Many business credit cards offer an interest-free intro APR period for new purchases, allowing businesses to delay payment for a short period without incurring interest. This flexibility can be invaluable for businesses with fluctuating income or when dealing with unexpected expenses. If you’ve got the financial wiggle room, you can easily make a major purchase and pay it off without interest.

Earn Rewards and Perks

For many types of businesses, the primary attraction of business credit cards is their rewards program. Cash back, travel rewards, and points for everyday business spending are some of the rewards that cardholders can enjoy.

For example, some business credit cards offer bonus points or cash back rewards for office supplies, gas stations, or business-related travel expenses. Different rewards cards come with different bonus categories, so make sure to understand your membership rewards to maximize them. These rewards can help offset the business’s cost and even be redeemed for statement credits, business travel, or merchandise.

Additionally, many business credit cards offer sign-up bonuses, such as a welcome offer or welcome bonus upon meeting specific spending requirements within the first few months or first year of account opening. These bonuses can significantly boost your rewards points balance and help you save money on your business expenses.

Employee Cards and Spending Controls

Business credit cards often provide the option to issue employee cards, making tracking employee spending and managing business expenses easier. With employee cards, you can set spending limits and monitor transactions, ensuring that your employees stay within budget and use the card for business-related eligible purchases only.

Access to Additional Benefits and Features

Check to see if your business credit card offers various additional features and benefits that can save your business time and money. Some of these features include purchase protection, warranty extensions, and cell phone insurance, which can help protect your business purchases and assets.

Moreover, business credit cards often come with tools for managing expenses and integrating with accounting software like QuickBooks, simplifying the process of tracking and categorizing transactions.

How to Get a Business Credit Card

To get a business credit card, follow these steps:

  1. Assess your needs: Determine the specific features and benefits you require from a business credit card. Consider factors such as rewards, cashback, low-interest rates, or travel perks.

  2. Research available options: Compare different business credit cards from various issuers, taking note of their features, fees, interest rates, and reward programs. Look for cards that align with your business spending patterns and financial goals.

  3. Check your credit: Business credit card issuers will typically review both your personal and business credit scores during the application process. Make sure your personal credit score is in good shape, as it may heavily influence your approval chances and the terms of the card.

  4. Gather necessary documents: Prepare the required documentation for the application, which may include your business’s tax ID number, legal structure, annual revenue, and other financial details. You may also need to provide your personal financial information for a new or small business.

  5. Complete the application: Apply for the chosen business credit card either online, over the phone, or in person. Complete the application form with accurate information about your business and personal finances.

  6. Provide a personal guarantee: Most issuers require a personal guarantee from the business owner, which means you’ll be personally responsible for repaying any debts incurred on the card if the business fails to do so.

  7. Wait for approval: The approval process can take anywhere from a few minutes to several weeks, depending on the issuer and the complexity of your application. Once approved, you’ll receive your business credit card and can start using it for your business expenses.

Choose the Best Business Credit Card for Your Needs

When selecting a business credit card, it’s essential to consider your business needs and spending habits. Some cards offer rewards for specific spending categories, while others provide more general rewards. Additionally, the annual fees, interest rates, and foreign transaction fees vary across different cards. Researching and comparing various card offers can help you find the best business credit card for your specific needs.

For instance, cards like the Chase Ink Business Preferred or the American Express Blue Business Plus offer various rewards and benefits catered towards small business owners. Be sure to evaluate the terms and conditions of each card to make an informed decision.

When Business Credit Cards Aren’t Right

If you need financing, remember, business credit cards will carry a high interest rate. In this case, it is often better to look to a merchant cash advance as a viable option. You can get funding often in as little as the same business day and even if you have less than perfect credit, you can be approved. Best of all, the approval process is nearly as simple as a credit card, you’ll just need a couple of months of your most recent business bank statements.

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