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5 reasons you need a small business credit card if you're self-employed

By , CardRatings contributor

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6 best credit cards for your small businessAccording to the Freelancers Union, about 56.7 million Americans, or 17% of the U.S. population as of 2018, are freelancers. For those of us who've abandoned the 9-to-5 grind in favor of the freedom and flexibility that comes with self-employment, managing the small business banking part of freelancing can be the trickiest part of the journey.

Between the endless cycle of invoicing and waiting with bated breath for the check to come in the mail, self-employed people who want to ease the financial ups and downs that come with freelancing should consider one particular option: a small business credit card. If used responsibly, a small business credit card allows you to invest in resources that will help your business grow when you may not have cash on hand. There are other benefits, too. Here are five reasons freelancers and other self-employed individuals should consider getting a small business credit card:

Separate business and personal expenses

One of the most important reasons to get a small business credit card is that it keeps your business and personal expenses separate and allows you to track your business spending.

This makes record-keeping a lot easier come tax time. With a business credit card you can easily see your overhead and itemize as many deductions as possible. Every swipe is an opportunity to lower your taxable income, and most credit card companies and banks that offer these cards allow you to export your monthly or year-end statements, which you can send to your tax preparer when it's time to do your annual return.

Some cards even offer special functionality and tools to assist with expense tracking. American Express® Business Gold Card and The Business Platinum® Card from American Express , for instance, both provide cardholders with access to American Express® Business App, which allows you to use your phone to snap picture of receipts and match them to card transactions, which in turn, could help tremendously with tracking your business expenses.

In the unfortunate event that you're subject to an IRS audit, having your credit card statements as a backup can be beneficial. It definitely beats keeping receipts in a shoebox (though, still, any good accountant will tell you it's best to hang onto them for at least three years).

Enjoy financial flexibility

Cash flow is always an issue for freelancers, but business credit cards offer a revolving line of credit that can be used when you need to make an expensive business purchase, when work is slow or when you're waiting for incoming client checks. Just be aware that like personal credit cards, business credit cards also carry interest charges, and in some cases, an annual fee. Shop around for a no annual fee card or one with a 0-percent introductory APR to cover some of your business expenses when cash is tight.

Another option to consider might be the SimplyCash® Plus Business Credit Card from American Express (This card is not currently available on CardRatings), which allows cardholders to spend over their credit limit without incurring a fee. You do have to pay off the overage at the end of the billing cycle, but you’ll earn rewards even on the amount you went over. A special introductory offer means you have 15 months of no interest on purchases (then, 14.49% - 21.49% Variable). (See Rates and Fees.)

Take advantage of perks not offered by personal credit cards

Business credit cards often have better terms than personal credit cards, including higher credit limits and the ability to extend your billing cycle. The Plum Card® from American Express , for example, allows cardholders to carry a balance for up to 60 days with no interest. It also offers a 1.5 percent discount if you pay early. (See Rates and Fees.)

Getting a business credit card also allows you access more signup bonuses. The Ink Business Preferred℠ Credit Card offers 80,000 bonus points – the equivalent of $1,000 in travel rewards when redeemed through Chase's rewards center – after you spend $5,000 in the first three months. Chase also allows customers to combine Chase Ultimate Rewards® points across multiple cards, so you can accumulate rewards even more quickly if you combine a Chase rewards business card with a personal one.

Another advantage of business cards: many credit card companies, including American Express® (American Express is a CardRatings advertiser) and Capital One®, among others, offer benefits like free employee cards to help you better control business spending (and rack up rewards), access to private airport lounges, free Wi-Fi, airline fee credits, and detailed reporting to help you better keep track of business expenses.

Earn rewards

Whether you sell handmade soaps on Etsy or design ads for a living, every freelancer has ongoing expenses. So why not get rewarded for money you would have spent anyway?

Business credit cards come in all varieties, including cash-back cards that reward you for everyday spending or travel rewards cards with a tiered points system for different categories. Before you sign up for a card, it's important to determine which rewards structure is right for you. I spend most of my day writing and editing from home, so a card that awards more points for gas station or office supply store purchases (or another category of choice) – like Bank of America® Business Advantage Cash Rewards Mastercard® credit card , which offers 3% cash back in a choice category) and 2% on dining (for the first $50,000 in combined choice category/dining purchases each calendar year), and 1% on everything else– probably isn't right for me. However, if you travel a lot on business, a card like Capital One® Spark® Miles for Business might be a good fit. It lets cardholders earn unlimited two times the miles on every purchase and provides a nice welcome offer: 50,000 miles when you spend $4,500 in the first three months of opening your account.

For someone who works from home, a card like the Ink Business Cash℠ Credit Card  would probably yield the most rewards since you can earn 5% cash back in select business categories and 2% at gas stations and restaurants (on up to $25,000 in combined purchases each year). This card also offers a 0% APR intro period (for 12 months, then 15.24% - 21.24% Variable). 

I happen to have a travel rewards card through my bank. Since all my accounts are held there, my bank rewards me for my loyalty with 50% additional bonus points for every purchase, no matter the category. This works out well because we take a big vacation once a year and I can amass rewards for that annual expense, which I can then redeem to pay for hotels, a rental car or flights. For freelancers who bank at one institution, ask about loyalty programs for which you may be eligible – if you don't, you could be leaving rewards on the table.

Build credit

If you get a business credit card, you'll likely have a business credit score if your card issuer reports to the major credit bureaus. The upside is that if you use your card responsibly, you could improve your score and get lower interest rates in the event you need to take out a business loan. If your card issuer reports your business card activity on your personal report, this could improve your credit score, too – but, as with any credit card, it could hurt it if you don't pay your bills on time or use too much of your available credit. Before signing up for a card, find out how your card issuer handles credit reporting.

In today's gig economy, more people will take the leap and work for themselves. There's plenty of rewards and risks in freelancing, but you can prepare for the latter with a business credit card. Whether you have temporary cash flow issues, want to earn rewards to offset some of your business spending or need to make a necessary business purchase, a business credit card can be a godsend – if you use it wisely.

*Editor's Note: We incorrectly calculated the percentage of the U.S. population who reportedly freelances in an earlier version of this article. The above has been corrected.

To see the rates and fees for the American Express cards mentioned in this post, please visit the following links: American Express® Business Gold Card(See Rates and Fees); The Business Platinum® Card from American Express (See Rates and Fees); SimplyCash® Plus Business Credit Card from American Express (See Rates and Fees); The Plum Card® from American Express (See Rates and Fees)

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