Often, businesses start off using a personal credit card, but as their business grows, find a business credit card is more suitable. These cards can be used to pay for a business’s regular expenses or used to cover costs when cash flow is slow in lieu of getting a short-term business loan.
Business credit cards offer a variety of advantages for businesses, including the ability to keep business transactions separate from personal transactions, making accounting much easier. The responsibility for the business card can either be personal, with the primary cardholder liable for managing the card and debt, or the business entity can be responsible, depending on the credit card terms and conditions.
A business credit card may sound the same as a business line of credit. There are, however, a number of differences between the two:
|Business credit card||Business line of credit|
|An unsecured loan based on your personal credit history||Can be secured or unsecured (collateral required for secured line of credit)|
|As it works almost exactly like a personal credit card does, use the card to pay for business-related purchases||Tap into the line of credit by making a direct deposit to your checking account, or by using a debit card linked to the account|
|Minimum balance to be paid each month and interest charged for late payments||Minimum monthly payment (based on interest charged and average daily balance|
|Expensive cash advances||No cash advance fees|
|You can avoid interest charges by paying your statement balances in full||You can pay off your balance and borrow again as often as you’d like|
|Based on your personal credit history||Helps to build a credit history for your business|
|You can receive rewards for your business spending such as airline points||Does not include rewards or benefits|
|There is usually a joining fee or renewal fee||May have opening, renewal or maintenance fees|
Business cards work in a similar way to personal credit cards, in that they both offer credit up to a set limit, have regular costs such as an annual fee and interest charges, and are paid off over time. Both also offer extras such as rewards programs or free insurance. But they also have some key differences, with some of the extra features of business cards appealing to many small businesses.
The advantages include:
The process of applying for a business credit card is similar to applying for a personal credit card, but you’ll need more information on hand.
What information do I need to apply for a business card?
In most cases, you will need to provide basic information about yourself and your business. Additional information, such as the legal business name, business structure, date it was formed, and your business’s total annual revenue may also be required.
How long will it take to receive my card??
This will vary, depending on the lender. Most individuals find that their business credit card will arrive within 7-10 days after approval.
Are business credit card expenses tax deductible?
Generally, most ordinary business expenses are tax deductible and this can include the costs and fees associated with maintaining your business credit card. Always ask your accountant about which business tax deductions are applicable to you.
What should I look for when shopping for a business credit card?
Two of the most important factors you’ll want to consider include the interest rate and any rewards offered. You want your business credit card to provide you with plenty of benefits, as well as to offer a system that works best for your business. It is recommended that you always read your business credit card policy carefully. See the section titled “9 reasons businesses may choose to use a business credit card” above for more factors to look for when choosing a business credit card.
Still not sure if a business credit card is right for you? Compare other types of financing to learn more.