A business credit card is one of the best financial tools available to business owners today. These cards can help you to access the credit and liquidity you need while maximizing the reward programs that many card issuers offer--but not all business credit cards are created equally.
Some business credit cards, no matter how strong their rewards may program may be, might not be the best card for you. And even the best rewards credit card is only as good as your ability to maximize the rewards you earn, and then redeem those rewards in a way that benefits your business.
How do business credit cards work?
Generally, a business credit works exactly like any credit card. You qualify for a certain credit line and interest rate, use the card to make purchases, and then later pay the purchases off by your bill date. Business credit cards can also come with many of the attractive features of consumer credit cards such as zero-percent APR introductory rates, points or cash back earned on purchases, travel benefits, and more. Additionally, business credit cards often come with added business perks such as account management tools and free employee cards.
One important distinction that small business owners might already be aware of is that business credit cards weren't as affected by the Credit Card Accountability, Responsibility and Disclosure (CARD) Act that passed in 2009. Because of that, consumer credit cards have better protections than business cards, some of which are subject to practices like two-cycle billing, which can make revolving debt more expensive on a business card than on a consumer credit card.
The bottom line though, in general, is that a business credit card is much like a consumer credit card. With it, you can buy anything that your credit limit allows. You can also utilize its rewards and features to save money and gain access to bonuses to benefit your business.
Getting the most out of a business credit card
Don't fall for a higher interest rate
Too often new business owners are so relieved about getting a card that they accept any rate they're offered. Big mistake, says Rohit Arora, CEO and co-founder of Biz2Credit.com, a small-business funding firm.
"New owners should look for cards that offer a zero-percent APR for a short time period," says Arora. "Many credit card companies offer this as an enticement to get new businesses. It can be helpful for a first-time business credit card recipient to take advantage of this deal." A card such as the Ink Business Cash® Credit Card which offers 0% introductory APR for 12 months on purchases (then 13.99% - 19.99% Variable), could be beneficial if you have large purchases on the horizon that you need some extra time to pay off, for example.
Tailor a business card to your specific needs
Business rewards cards come in several categories. Some allow you to build up points or miles that you can then turn into free or upgraded flights on a particular airline or across a variety of airlines. Others simply refund you a certain percentage of cash based on your purchases. Still others allow you to redeem points for hotel stays, merchandise, gift cards and more.
The way a card earns rewards will vary as well. Some come with tiered rewards programs, earning you bonus rewards in specific categories, while others earn on all purchase made.
It's important for business owners to consider their specific business when choosing a rewards card and select a rewards program most suitable for their needs.
"There is no one right business rewards card for every customer," says Beverly Harzog, credit-card expert and author of the book Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made. "One card might be perfect for one business owner but the wrong choice for another."
For instance, there are excellent airline-branded small business credit cards out there that come with a slew of bonus opportunities and even the chance to earn a free companion travel ticket. The thing is, if you never have to travel for business, that card likely isn't going to be the one that allows you to maximize rewards and cash in what you earn.
That's an obvious example, but it's often more nuanced than that. Maybe you buy a lot of office supplies, but you tend to do it through Amazon rather than through a traditional office supply store. In that case, credit cards that offer bonuses on your "office supply purchases" likely aren't going to benefit you even though they sound good at face value.
Bottom line: Businesspersons need to consider the type of purchases they tend to charge each month. Those who spend more time entertaining clients than buying supplies might do better with a card that provides more points for money spent on hotel stays and restaurant meals.
Business owners should also look at their own needs when debating the merits of business rewards cards. Some owners might fly across the country on a regular basis. A card that allows turning those points into reward flights obviously might make sense. However, it's important to think beyond the rewards to things like free checked bags, airport lounge access, or complimentary WiFi, all perks and features that can help you decide between two cards with similar reward programs.
Others might earn income sporadically from their businesses. In that case, a rewards card that offers a robust cash-back program might help with monthly cash-flow issues.
Read the fine print
As we mentioned previously, many of the protections provided on consumer credit cards from the Credit CARD Act of 2009 do not apply to small business credit cards. This means that the interest rates connected to business credit cards can rise quickly. At the same time, late or over-the-limit fees on business credit cards are not capped.
The act does state, though, that the issuers of business credit cards must inform their customers in writing before they raise their interest rates. This means that it's important for cardholders to pay attention. Don’t let a robust rewards program distract you from the fact that your interest rate could soon skyrocket, especially if you plan on carrying a balance.
Those business owners who struggle to send in their payments on time -- either because of cash-flow or organizational issues -- need to be especially careful. Late payments can bring big penalties and send interest rates to new heights. Even if a card has a generous rewards program, those with a history of late payments would probably be better off searching for an alternative card with less severe late-payment penalties.
>>Related: Reasons to get a small business credit card
Business credit card FAQs
How do you get a business credit card?
The process for applying for a business credit card is pretty similar to the process of applying for a consumer card. Start by using our business card comparison tool to find the right one for you. Consider the points we talked about above, such as each card's rewards, interest rate, and fine print.
Once you've found the right card, the application process itself is simple. You'll have to provide your business name and contact information, financial information, and likely your Social Security number.
Can I get a business credit card without a business?
In the traditional sense, you don't have to own a physical storefront or be an officially registered business to qualify for a small business card. Given today's gig economy, who qualifies as a business owner is no longer so black and white. Freelancers and self-employed individuals could also be eligible for business credit cards. In short, you must be an "authorized officer," meaning you have the legal right to enter into borrowing arrangements with financial institutions on behalf of a business, in order to qualify. If you are the owner of a sole proprietorship business or are the sole owner of a small business, you are the authorized officer.
Do business credit cards affect personal credit?
As a small business owner, activity on your business credit card may or may not affect your personal credit. When you apply for a business credit card, many card issuers ask the business owner to personally guarantee the debt.
In other words, if your business can't make the credit card payment, then the business owner is expected to cover this cost. As a result, if there are late payments or delinquent accounts, a card issuer may report them to the business owner's personal credit report and they can impact your personal credit score.
What if I have poor credit or am not approved for a business credit card?
If you know you don't have stellar credit, or if you apply for a business credit card and are denied because of your personal credit score, you'll want to take some steps to build your credit before trying to apply again. Though not always specifically business credit cards, there are a number of cards available for those with limited or no credit, fair credit, and even bad credit. These cards might not offer the perks, interest rates, or credit limits you desire, but over time, with responsible use, they can help build your credit score so that eventually, you can try applying again for cards with more lucrative perks, or for the business credit card you really want.
Can I use a business credit card for personal expenses?
While it's not technically illegal to use your business credit card for personal matters, it's still ill-advised. First, using your business card for personal purposes likely violates the terms and conditions of the credit card agreement. Business owners should use personal credit cards to make personal charges and business cards to charge office supplies, equipment, and other company expenses.
What if they don't? If someone sues a business owner, that owner's personal assets could be subject to legal action. Furthermore, one of the top reasons to have a small business credit card is to help you keep your business and personal expenses separate. You'll be glad you did come tax time each year.
Are business credit cards worth it?
A business credit card can offer plenty of excellent benefits such as travel or cash-back rewards, introductory interest rates, and the ability to build your business credit. Just make sure that before you open a business credit card, you fully understand the terms of your card.