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. They can help businesses build a credit profile to improve future credit borrowing terms. Small business credit cards may also be backed by a personal guarantee that integrates a personal liability, which can also help in structuring credit terms.

Just like with personal credit cards, a business credit card is convenient, offers rewards and incentives, can be a tool to build credit, and can provide a company with a much-needed financial cushion when the business is short on cash.

How a Business Credit Card Works

Business credit cards are offered from 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, which makes it even easier for all types of businesses to obtain a business credit card.

Advantages and Disadvantages of Business Credit Cards

To obtain a business credit card, borrowers must complete an application. Generally, business credit cards can be easier to apply for than non-revolving business loans since the process is usually automated with an immediate credit decision. They also come with many added benefits. As a result, business credit cards usually have slightly higher interest rates than traditional loans. Credit card debt is also usually unsecured which increases financing costs due to the higher risks for lenders.

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

Personal Guarantees

Oftentimes businesses do not have the minimum requirements needed for credit scoring, revenue, and income analysis, so they must rely on the backing of a personal guarantee. A personal guarantee is a business card provision that holds the individual applying for the card liable for card payments and fees.

Many business credit cards will include a personal guarantee provision in their business credit card terms regardless of qualifying measures so it’s important for borrowers to read and fully understand all of the terms outlined in a business credit card agreement. If personal guarantee provisions are enacted for repayment, business credit card delinquencies could be reported on an individual’s credit report.

Key Takeaways

  • Business credit cards are used by firms for professional expenses, as opposed to personal credit cards, which are used by individuals.
  • Business credit cards can help smaller companies build up credit so they have better credit borrowing terms in the future.
  • The cards are often easier to apply for than non-revolving business loans, come with many benefits and have higher interest rates than traditional loans.
  • The cards are especially helpful for small businesses, for bookkeeping and to keep personal expenses separate from professional ones.

Special Considerations

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

Business credit cards usually have unique benefits designed to entice business customers. These benefits may be different from the benefits offered to individual customers. For example, some business credit cards offer cash back on purchases at stores where 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 travel. Business credit cards also sometimes offer more flexible repayment terms designed to appeal specifically to businesses whose cash flow may be irregular.