Business Credit Cards

How to Tap Their Credit & Accounting Benefits

For small businesses that always seem to be making new purchases, a credit card may seem to be the easiest way to build credit and ensure a financial safety net. It is a way for employees to separate their personal and business purchases, as well as for business owners to manage employee and overall company spending. Read on to learn how a business credit card may be right for your business.

Why to Use a Business Credit Card

For small businesses that always seem to be making new purchases, a credit card may seem to be the easiest way to build credit and ensure a financial safety net. It is a way for employees to separate their personal and business purchases, as well as for business owners to manage employee and overall company spending. Read on to learn how a business credit card may be right for your business.

Startup Capital

Established businesses are at a greater advantage to secure a traditional bank loan due to established credit. Therefore, in order to pay for the initial expenses of a startup business—whether it be for space, new hires, or inventory—a bank loan through a credit card will become fundamental. Receiving this loan grants the ability to gain startup capital and maintain working capital, as well as continue any ongoing purchases and expenses necessary to get the company on its feet.

Working Capital

The current assets do not always exceed the liabilities (the accounts receivable cannot cover accounts payable), which is especially true for newer startups. To carry on normal day-to-day operations, a company will need to depend upon its working capital. A business credit card will provide a financial cushion in this situation.

Growth Capital

For a new company to expand, growth capital for inventory or new operations may be necessary. This can be done through a private equity investment or a credit card loan.

Cash Advance

Emergencies and accidents are bound to happen, but a business credit card allows your business to pay for any unexpected issues. A short-term cash loan will put the company back on track and allow them to pay off the debt over a period of time.

Business Credit

Just as a personal credit card builds a personal credit score, a business credit card builds a business credit score. With a positive business credit record, companies and investors will favor you as a business partner, and banks will entrust you with loans and better interest rates.

Clear-Cut Accounting

A separate business card also helps to clearly distinguish personal expenses from business ones. This cuts the time and confusion out of the accounting needed to be done for tax reporting and tracking financial records.

Rewards, Discounts and Bonuses

Incentives to use business credit cards include hotel and travel discounts, as well as rewards and cash back programs with office supply stores. Your business might also be eligible for a signing bonuses or 0% interest rates for a certain period of time.

Real-Life Scenarios

Here are four hypothetical examples of business credit cards in action:

1. Working Capital Example

Imagine that a private-label manufacturer of candles receives 32 invoices of shipping orders per month. This manufacturer does not have vendor-supplied trade credit with the suppliers that provide the materials for its candle-making process.

With an average 45 days on hold with receivables outstanding (debts owed) from customers and no loan from the suppliers, they may be short on money to keep buying materials. To cover the period between invoicing and payment, the manufacturer bridges the gap in cash flow by using a business credit card to pay for its candle-making supplies.

2. Growth Capital Example

A catering company bids successfully for a prominent large-venue event that can host  300 guests. In order to adequately staff it and provide quality customer service, the company hires additional contract workers to prepare, deliver, and serve the food.

However, it will not receive full payment for the event until after the payroll date. Using a business credit card, the company covers food-related expenses so that it can use its more readily available money to pay the workers on time. As soon as the company receives full payment from the event client, it can turn around and pay the balance that accumulated from paying for the food on the credit card account.

3. Cash Advance Example

The equipment used by a clothing company unexpectedly breaks down, requiring a replacement that costs $25,000. To keep business running smoothly, the company uses a business credit card to receive a short-term cash loan and provide upfront payment for the equipment. The company pays off the purchase over several months, including interest charged on the balance. The interest rate is higher than what the company would have paid through a bank business loan, but it is a short-term situation—and the company can write off the interest as a business expense.

4. Tracking Expenses Example

A self-employed IT specialist sets up consulting services as an LLC. Because he must travel all over the country to reach his clients, he uses a business credit card to pay for all travel expenses. By keeping the airfare, care travel, lodging, and restaurant meals for business separate from his personal transactions, he can request reimbursement from his clients easily and without error.

Furthermore, this IT specialist is able to limit any personal liability whilst maintaining the LLC as a separate entity that holds the liability. And once he builds a good business credit score and obtains the rewards points that go with it, he can get travel discounts to help pay for his business travels.

Business Credit Cards by the Numbers

Why a Business Card is a Healthy Risk

There are many reasons why a small business may be reluctant to set up a business credit card and opt to use their personal cards instead: Business cards do not offer the same protections that personal cards do—these protections include those involving fraudulent charges, debt repayment, and excessive fees. Interest rates also tend to be higher for business cards.

So what are the advantages? Why should you take the risk? Among other important incentives, a minimum credit score is necessary to apply for a traditional bank loan. If your business does not build an adequate credit rating, it will be more difficult to be trusted with and granted one down the road. This is all in addition to extremely generous rewards programs and signing bonuses that are not traditionally given out to individuals.

The following summarizes the reasons to use a business credit card instead of a personal card:

  • Building a credit history
  • Discounts and rewards programs
  • Cash flow flexibility
  • Separate accounting

Tip for Applying

Your current bank or financial institution already has access to your financial information and understands your personal and business-related financial situation. Therefore, you can get a head start and increase your chances of approval if you apply for a business credit card through them.

Gathering the recent income statements and balance sheets that give evidence of your ability to repay outstanding balances will give you an advantage. And if you have a credit score that needs improvement, don’t fret—your relationship with your bank means more possible leniency with your application.

For fewer headaches and more clear-cut organization, separate accounting for your personal expenses and your business expenses is simply the best way to go. But it goes further than this: you may need to consider separate accounts for liability reasons.

Fortunately, the limited protections and liabilities of a business card will not affect your own financial stability and credit history. This is especially important on a joint endeavor such as a business set up as an LLC or business entity.

You must also consider the fact that a personal guarantee must be signed before you can even get a business card. This means that you as the business owner are responsible for paying off the bills when the business cannot. However, having that business credit card is an extra line of defense that will prevent the issuer from grabbing your personal savings to pay off debt.

Cash Flow Flexibility

If you operate a business that has relatively high cash flow needs or has expected periods in which expenses will spike, you will need higher spending limits. A business credit card has limits that are higher than what you would normally expect as an individual credit holder. An NSBA survey has even reported that 16 percent of small businesses have had a limit of more than $50,000.

This cash flow flexibility will also allot your business more room to grow and expand revenue without worrying about exceeding the credit limit.

Business Credit History

How do you raise your business’s credit score rating? Use your business credit card wisely in order to strengthen the record of your financial history. One way to do this is to view your balances owed on your card as a short-term obligation—not a long-term one. This is to ensure that you pay off lingering balances as soon as possible. If you fail to do so, interest rates get high and debts build up over time.

Business credit scoring organizations will look at your financial statements in order to measure your company’s history and assign a credit rating. It is important to know which credit agency your issuer reports your activity to, as different organizations will use different criteria. For example, Dun & Bradstreet (D&B)’s Paydex score considers payment history (including the trade experiences with various vendors), promptness in paying your bills, and compliance with payment terms. On the other hand, Equifax considers all this plus your lending history. Experian goes even further and searches your company’s industry code, lifespan, and financial performance.

Unfortunately, less than 20 percent of credit card issuers report your business’s financial history to a credit reporting agency. Be proactive and research potential issuers before committing to one. There are more than 500 business credit card types, and you are going to want to sign onto one that guarantees an accurate credit rating score.

The benefits of a good rating include lower interest rates on lines of credit and loans.

Additionally, as your company grows, you may need a higher spending limit. You can obtain this through additional business credit cards—which is only possible if you maintain a good credit score under your first card.

Discounts and Rewards Programs

Issuers of business credit cards know exactly what companies are looking for in terms of enticing perks. While it’s true that they provide these incentives as a way to get business, you will find that they are beneficial and worth the while on your end, too.

As previously mentioned, signing bonuses will include 0% interest rates that will last from a few months up to a year or even longer. This is critical during the early stages of building your business—you will need to pay for the bulk inventory and equipment necessary to get up and running.

Although you will receive rewards points and cashback opportunities with a personal credit card, a business credit card comes with extra bells and whistles. These include longer expiration dates and cashback at higher percentages. And because they know that businesses may eventually seek out more credit cards in order to expand their business, issuers will sometimes give out multiple cards without the additional cost.

Factors Banks Use When Considering a Business Credit Card Application

If you’ve decided that a business card is right for your business, your next step is to apply. What factors contribute to a card issuer’s approval of your application? How do you find one that suits your financial situation best?

The following factors are commonly considered upon review:

  • Business credit report
  • Personal credit report
  • Income history
  • Existing debt

Fair Isaac Corporation’s FICO score for the assessment of an individual’s credit risk is calculated from records of payment, debt, and credit history, as well as types of credit. Similarly, the major credit bureaus—which include Dun & Bradstreet (D&B), Equifax, and Experian—will give out a score that helps issuers assess the credit risk of a business.

D&B’s Paydex Score ranges from 1-100 and accounts for the promptness of payment to creditors and suppliers. Experian’s Intelliscore is also 1-100. It does not factor in early payment, but it does consider credit utilization, company demographics, and public records. Finally, Equifax’s Business Credit Report involves a credit score (100-992), a payment index (0-100), and Business Failure Score (1,000-1,880). This last score predicts the likelihood of a business experiencing a charge-off or 90-day severe delinquency in the next 12 months.

In addition to your personal and business credit reports, your income history and existing debt will be examined in order to determine your debt-to-income (DTI) ratio. The lower the ratio, the lower your interest rates.

All these scores are largely based on your payment and credit history. Although it is best that you hold a good record, all issuers are different and can vary when it comes to their terms, rewards, and restrictions. So even if you lack revenue or a solid payment and credit history, there are still plenty of issuers that will give their approval—the downside may simply be higher interest rates.

What to Look For in a Business Credit Card

Finding the right fit goes both ways; just as you will be researching if a credit card issuer is a good match for you, issuers are going to need to assess your information as well. So before you commit to one credit card issuer, shop around, compare the different policies and options, and get your financial statements ready. Things that you are going to want to consider and discuss with different companies will include your business’s financial background and payment history (which will help determine the amount of credit an issuer will provide you), as well as your personal salary, purchasing behavior, and credit score.

Remember that size matters. If your business’s annual revenue falls under $25 million, you can probably stick with a small-business credit card. However, once you reach that threshold amount, you may be better off going with a corporate credit card. And sometimes substantial growth means that it’s time to not only upgrade your card type, but also your card issuer. Watch out for signs such as overtaking spending limits or having too many employee business cards. With increasing revenue and number of business credit cards in use, it is easy to fall into ignorance about the amount of debt you are accumulating.

What kind of credit card issuers are there? You will undoubtedly recognize the names American Express, Visa and MasterCard. But don’t be fooled by popular chatter about these payment networks. The difference is not between them, but between the card issuing companies that they work with. So when you are doing your research, pay attention to the cardholder agreements, benefits, rewards, and policies of the issuer—not the payment network.

Some credit cards and card issuers—such as those mentioned above, in addition to other companies like Discover—will provide services such as automatic account management. As business grows and more employees spend money with a business card, having multiple cards that connect with an accounting software system to track all transactions and data is much more productive and less complicated than to track it all yourself.

Interest Rate

It is imperative to research each company’s interest rates, for they can range from around 15-25%. Many offer low to 0% introductory interest rates for up to a year or longer provided you read the fine print and follow their terms and conditions. This includes paying on time and knowing when the period ends. Sometimes rates jump to 10% without any warning—so stay vigilant.


The transaction, flat, and incidental fees are typically higher for business than personal cards. However, transaction fees are generally worth the cost if your business is paying for expensive items—the more expensive the item, the cheaper the fee.

Moreover, an annual flat fee of $100 to maintain your account is normal, but zero annual fees aren’t impossible to find.

Spending Limits

Spending limits on business credit cards are generally much higher or there are no limits at all. This is because business owners tend to spend a lot more than an individual consumer. According to the NSBA, 36 percent of business owners carry a balance of more than $10,000.  When determining what kind of limit is best for your business, the key is to examine your current cash-flow and account for future growth. You are going to want to search for the flexibility to tap into additional funds that are beyond your current needs.

Extended Payment Periods

Similar to personal credit cards, business credit card issuers will normally provide a 21-day grace period at the end of your billing cycle. This allows you to pay off your bill slowly over time with no interest. Some issuers will only require a minimum payment at the end of a billing cycle—not a full payment—or even offer a discount for paying off a balance early. These are all to respect the unpredictable cash flow periods of businesses. Issuers also understand that large purchases will be made and may need more time or different terms in order to be financed. Once your business gets on its feet and you notice patterns in its operational cycle, you can better choose a credit card based on which of the many beneficial payment terms suits your situation.

Rewards and Bonuses

In addition to extended payment and interest-free float periods, issuers provide rewards programs that involve redeeming points. Traditionally, each dollar you spend gains you 1 point. However, some companies have rules that make certain categories of purchases worth more points. You may also receive points for spending within the first few months of opening an account or for referring a friend. The points accumulated can be redeemed for office supplies or other business services such as travel.

If your business requires extensive travel, a card that offers rewards for airline miles, hotel points, and vehicle rentals will be preferred over other services. Look for a card that not only offers these perks but also allows you to transfer points between airline and hotel partners. Doing so gives you options if your usual go-to airline doesn’t have the flight routes or hotel locations you prefer.

Other discounts include cashback bonuses that allow you to “make money” while you spend. This means, depending on the issuer, you will receive a certain percentage of cashback on your purchase. Much like redeeming points, some companies offer a flat-rate on each purchase, while others offer different percentages based on different types of purchases. You can take this money as a deposit or spend it on another kind of reward available to you.

Card Liability

There are two types of liabilities attached to business credit cards that you should be on the search for: commercial or joint and several liabilities.

Commercial liability is the optimal choice because it makes your business responsible for any debt or bankruptcy. Keeping your personal life and your business life separate is probably the main reason to use a business credit card instead of a personal one. So although many issuers require a personal guarantee to be signed, complete liability on the part of the business is what you are probably going to prefer.

Joint and several liabilities lie somewhere in between commercial liability and personal liability. It puts any responsibility of debt or bankruptcy on both you and your business. This is a step up from having the burden completely on you personally.

Other Services

Issuers of business credit cards continually try to meet the wants and needs of business owners with their variety of services and programs that are specifically tailored to the business world. They are continually tweaking these services to fit the desires of cardholders.

In addition to the rewards and bonuses previously described, here are some more examples of their special offers:

  • Points from advertising
  • Points for shipping expenses
  • Points for Amtrak travel
  • Airport club and lounge access
  • Expense-tracking tools
  • No foreign transaction fees

The expense-tracking tools mentioned above can be extremely helpful with an increasing amount of credit cards in circulation among your employees. You are going to need aid in managing their purchasing powers, so some programs allow you to set employee spending limits or to restrict card charges to specific types of purchases.

Additional REsources

A Few Other Resources We've Created for Our Customers

Can Having a Pet Save You Money?

With food costs, veterinary bills, and the price of good old-fashioned TLC, it may seem as though pets drain our bank accounts at an alarming rate. Of course, any pet parent will argue that they’re worth every penny and more, but it turns out that owning a pet can...

The 6 Best Personal Finance Apps

With a Smartphone, you can go on a shopping spree with just a few finger taps; therefore, it is tempting to “treat yourself” regularly even when you probably should save your hard-earned money. Fortunately, this technology can also help you make the most of your...

Mastering the Art of the Down Payment

Writing a payment check can be unsettling, especially when you are handing over your life savings in one shot. Before you pay for your house deposit, you have to save and save – and saving up enough money to put a down payment for your house isn’t easy. But how much...

6 Budget Mistakes to Avoid in 2019

A lot of people are turned off by the concept of budgeting, usually because they worry they won’t be able to spend their money on anything fun ever again. Unfortunately, failing to budget properly can be financially devastating.  Even if you’ve created budgets in the...