Business credit cards are a valuable tool for entrepreneurs and business owners. They can help you separate business expenses from personal spending, build business credit, and earn rewards on your purchases.
In this blog, we’ll cover everything you need to know about business credit cards, from how they work to their pros and cons. We’ll also help you decide if a business credit card is right for you and explore how Fyle can simplify business credit card management.
What is a Business Credit Card?
A business credit card is a credit card that’s issued to a business rather than an individual. Like a personal credit card, it allows businesses to purchase and borrow money. Business credit cards come with their own limit, interest rates, and rewards programs.
Business Credit Card Vs Personal Credit Card
Using a business credit card is similar to using a personal credit card, but with a few key differences:
Easier Application Process: Getting a business credit card is often easier than securing a traditional business loan. Applications are typically automated, and you can get a decision right away.
Interest Rates: Business credit cards typically have higher interest rates than loans. This is because business credit card debt is unsecured, meaning the lender isn’t guaranteed to get their money back if you can’t pay. Some issuers offer secured business credit cards with lower interest rates, but these require a deposit upfront.
Building Business Credit: Just like individuals, businesses can build credit history. Using a business credit card and making your payments on time helps establish good business credit. This can be beneficial if you need to take out a loan for your business in the future.
How do Business Credit Cards Work?
Using a business credit card is similar to using a personal credit card. You make purchases with the card, and then you’re responsible for paying back the balance each month. If you don’t pay the balance in full, you’ll be charged interest on the outstanding amount.
Here are some of the key terms you’ll need to be familiar with to understand how business credit cards work:
Credit Limit: This is the maximum amount you can spend on the card.
Interest Rate: The annual percentage rate (APR) at which you’ll be charged on your outstanding balance.
Statement: You’ll receive a monthly statement that shows your purchases, payments, and current balance.
Minimum Payment: This is the minimum amount you must pay each month to avoid late fees.
Did you know?
Apple attempted to launch its own business credit card program with Capital One in the late 1990s, but the project never came to fruition. The Apple card was finally launched in 2019.
Who Qualifies for a Business Credit Card?
Business credit cards are accessible to a wider range of businesses than you might think! Here’s a breakdown of who typically qualifies:
Individual Business Owners: This includes sole proprietors and freelancers. Keeping your business finances separate can be beneficial even if you're a one-person operation.
Established Businesses: Small and large businesses, corporations, and Limited Liability Companies (LLCs) can leverage business credit cards for various purposes.
The Key Ingredient: Creditworthiness
While having a physical storefront or a large team isn't required, a strong personal credit is typically the critical factor in getting approved for a business credit card. Issuers will often look at your personal credit score to assess your creditworthiness.
Beyond the Basics: Demonstrating Income
While good personal credit is crucial, some lenders may also consider your business's income history, especially when applying for cards with high credit limits or premium rewards programs. Established business income can improve your chances of getting approved for the most desirable business credit cards.
Did you know?
According to Forbes Advisor’s 2023 poll, 29% of businesses sought funding via business credit cards in 2022.
Applying for a Business Credit Card
You can apply for a business credit card using your business’s Employer Identification Number (EIN) if you have one established. Alternatively, you may be able to use your personal Social Security number. Regardless of which option you choose, the lender will consider all the information on your application to make a decision. They’ll review your business credit report (similar to a personal credit report) to see your past performance with credit.
Did you know?
Nearly 91.4% of those who primarily funded their businesses with business credit cards agree that they’d advise other entrepreneurs to consider this method.
There are several advantages to using business credit cards:
Separate Business and Personal Expenses: Using a business credit card helps you keep your business expenses separate from your personal expenses. This can simplify your bookkeeping and make it easier to track your business spending.
Build Business Credit: Using a business credit card and paying your bills on time can help you establish good business credit. This can be helpful if you need to take out a loan for your business in the future.
Earn Rewards: Many business credit cards offer rewards programs that can help you save money on business expenses. For example, you may earn cash back, travel points, or rewards on specific types of purchases.
Improve Cash Flow: Business credit cards can help you improve your cash flow by allowing you to float business expenses until your next billing cycle.
Cons of Business Credit Cards
There are also some disadvantages to consider:
Personal Liability: In some cases, business owners may be personally liable for business credit card debt. This means that if your business can’t pay its bills, you could be on the hook for the outstanding balance.
Interest Rates: Business credit cards typically have higher interest rates than personal credit cards. This means paying your balance in full each month is essential to avoid accruing interest charges.
Annual Fees: Some business credit cards charge annual fees. Before applying, weigh the card's benefits against the annual fee.
Do I need a Business Credit Card?
Whether or not you need a business credit card depends on the size and nature of your business. However, here are ten questions you can ask yourself before you decide where you need a business credit card:
Separating Business and Personal Expenses
Do I struggle to keep track of my business and personal expenses, especially during tax season?
Would having a dedicated credit card for my business make managing my finances easier?
Credit Limits and Building Business Credit
Is my current personal credit card limit insufficient to cover my typical business expenses?
Do I want to establish a separate business credit history to improve my chances of securing a business loan in the future?
Credit Score and Business Growth
Do I have an excellent personal credit score that would qualify me for a business credit card with favourable terms?
Is my business growing or planning to expand soon, potentially requiring additional funding?
Employee Spending and Rewards
Do I have employees who regularly make purchases on behalf of the company?
Would earning cash-back rewards on business purchases benefit my company's bottom line?
Alternatives to Business Credit Cards
Does my business generate enough revenue to cover all its expenses without a credit card?
Do I have access to other types of funding, such as term loans, with lower interest rates and longer repayment terms?
How Fyle Helps Manage Business Credit Cards
With Fyle, we built a product that explicitly helps businesses simplify their business credit card management. Here’s what we can do:
Real-Time Credit Card Feeds: Fyle integrates with all major credit card networks–Visa, Mastercard, and American Express—to send you credit card transaction data in real-time via text message. Employees can reply to this text notification with a receipt picture for instant reconciliation.
Business credit cards offer a variety of benefits for businesses of all sizes. They can help you separate your business and personal finance, build business credit, earn rewards, and improve cash flow management.
However, it’s essential to know their potential drawbacks, such as personal liability and high interest rates.
If you decide a business credit card is right for you, Fyle can be an invaluable asset in streamlining your business credit card management process.
