What Is a Business Credit Card?

A business credit card is a credit card intended for use by a business rather than for an individual’s personal use. Business credit cards are available to businesses of all sizes and can help them build a credit profile to improve future borrowing terms.

Key Takeaways

  • Business credit cards are designed for use by businesses, as opposed to personal credit cards, which are used by individuals.
  • For small-business owners, in particular, having a business credit card can be a good way to keep their business and personal expenses separate for bookkeeping and tax purposes.
  • Business credit cards often come with special perks, but they lack some of the consumer protections that are required on credit cards for individuals.

How a Business Credit Card Works

Business credit cards are offered by a wide range of lending institutions. The process for applying is similar to a standard credit card application. Business borrowers can apply with or without an employer identification number (EIN), which makes it easier for small businesses to obtain a card.

Generally, business credit cards are easier to apply for than non-revolving business loans since the process is usually automated, with an immediate credit decision.

Business credit cards typically have slightly higher interest rates than traditional loans. The reason is that the credit card debt is usually unsecured, which means higher risk for lenders. (Some lenders also offer secured credit cards that can be helpful for businesses with little or no credit history.)

Business owners can apply with an EIN if they have one established or they may use their personal Social Security number. Lenders will base their underwriting analysis on all of the information included in the credit application. Businesses have credit reports and establish a credit history in the same way that individuals do, so any activity using an employer identification number will be reflected in the business’s credit report.

Pros of Business Credit Cards

Business credit cards have some unique advantages compared with their consumer counterparts. For example:

Managing Expenses

Business credit cards can be a good way to manage and itemize business expenses. In addition to offering the usual conveniences associated with credit cards, business credit cards help small-business owners, in particular, keep their work-related spending separate from personal spending. This separation can be useful for accounting and tax purposes. The cards also provide an easy way for employees to make purchases and for businesses to monitor their employees’ business purchases.

Special Perks

Business credit cards usually have some unique benefits designed to entice business customers. These benefits may be different from the ones offered to individual customers. For example, some business credit cards provide cash back on purchases at stores that businesses are likely to frequent, such as office supply stores. Business credit cards also tend to offer larger sign-up bonuses than individual credit cards in anticipation of high business spending. Many will also offer 0% interest as an introductory rate for a short period of time.

Travel perks are another common benefit, since many businesses have significant travel expenses. A business credit card might entitle the holder to use an airline’s VIP lounge at airports or receive discounts on hotel stays during business trips.

In addition, business credit cards sometimes offer more flexible repayment terms, designed to appeal specifically to businesses whose cash flow may be irregular.

Cons of Business Credit Cards

But business credit cards also have some serious downsides that are worth taking into consideration:

Personal Guarantees

Often, businesses do not have the minimum requirements needed for credit scoring or other analysis of their creditworthiness, so the lender may ask for a personal guarantee from a business owner or other individual. A personal guarantee is a contractual provision that holds the individual applying for the card liable for the regular payments and fees.

Many business credit card agreements include a personal guarantee provision regardless of the business's creditworthiness, so it’s important for borrowers to read and fully understand all of the terms outlined in the agreement. If the lender enacts the personal guarantee provisions for repayment, any delinquencies on the card could be reported on the individual’s credit report and damage their credit score.

Fewer Consumer Protections

When Congress has expanded the protections on consumer credit cards, most notably in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), it has generally made business cards exempt from the new rules. As a result, consumer protections that many people take for granted with their regular credit cards—such as forbidding interest rate increases on existing balances—may not apply to their business cards.

Some card issuers have voluntarily extended some of those protections to their business credit cards, but applicants shouldn't assume that unless it's spelled out in the card agreement.