Learn what to look for when comparing, choosing, and applying for a business credit card.
Many small business owners use business credit cards for short-term expenses such as purchasing inventory or services. Business credit cards can be a convenient way to access funds quickly, and they often offer rewards and benefits, but it’s wise to make sure that you understand how they work and choose the right card for your business.
How do business credit cards work?
Business cards work similarly to personal credit cards, allowing you to take advantage of a revolving line of credit that you repay each month. Interest is charged if you carry a balance forward to the next billing period.
Unlike a typical business line of credit, the most common way to borrow money using a business credit card is by providing your card to a merchant when you purchase goods or services, rather than receiving cash directly from the bank. If you pay off your balance in full each month, you receive an interest-free loan (often called the “grace period”) from the time you make a purchase until your statement due date. This interest-free period can last between 20-50 days, depending on when during the month you make your purchase.
Business credit card companies will run a credit check and look at your personal credit score, financial history, and your business’s revenue when approving your application. Business credit cards are generally much easier to obtain than business loans, even for newer businesses and startups.
Some business credit cards are technically a charge card, rather than a credit card. The difference is that a charge card does not have a limit, but you are required to pay it off in full each month, with large fees if you are unable to pay. You must have a high credit score to obtain this type of card.
In contrast, a business credit card has a limit and a minimum monthly payment. You cannot exceed your credit limit, but you may carry a balance from month to month and pay only the minimum payment; however, you would have to pay interest, which can be expensive.
What’s the difference between business credit cards and personal credit cards?
Business cards and personal credit cards are very similar, but there are a few key differences that business owners should be aware of.
They are only to be used for business purposes. Many business credit cards specifically require you to use them only for business purposes. This can be helpful, as it separates your business and personal transactions, simplifying your accounting and ability to track your business expenditures.
They have fewer consumer protections. Business credit cards are not subject to the Credit CARD Act of 2009, a law that enforces several protections for consumers, requiring clear disclosures on terms and including restrictions on how credit card companies can change terms or raise interest rates.
This means it is particularly important to make sure you fully understand the terms of your credit card, as it’s possible for your APR to suddenly change or for you to be charged large penalties for minor errors. Individual companies may offer protections and services for their customers, so it’s a good idea to investigate what is offered before choosing a card.
They report to commercial credit bureaus. While consumer credit card companies report to the consumer credit bureaus, business credit cards typically report to commercial credit bureaus. Some report to both commercial and consumer credit bureaus.
They have business-focused rewards. Business credit cards may offer rewards in categories that are more likely to be relevant to businesses, such as office supplies or phone and internet bills. Some types of rewards, such as a percentage of cashback on all purchases or rewards for spending on fuel, are common for both business and personal credit cards.
They have higher credit limits. Personal credit cards will typically have a lower limit, while the high limits of business cards will allow you to make more and larger purchases.
Types of Business Credit Cards
There are a number of types of business credit cards with a variety of special features. A few common types, along with popular examples, include:
|Good For||Credit Card||Annual Fee||Rewards||Intro Offer|
|Cashback||Capital One Spark Cash for Business||$0 for first year, then $95||2% cash back on all purchases||$500 cash bonus once you spend $4,500 on purchases within the first 3 months|
|Cashback, No Annual Fee, 0% APR Period||American Express Blue Business Cash™ Card||$0||2% cash back on all purchases up to $50,000 per calendar year, then 1% on purchases after that||$250 statement credit once you spend $5,000 on purchases within the first 6 months, with an additional $250 statement credit after you spend an additional $10,000 or more within the first year|
|Cashback, No Annual Fee, 0% Intro APR||Chase Ink Business Cash® Credit Card||$0||5% cash back on office supplies and internet and phone services, 2% cash back on gas station and restaurant purchases, 1% cash back on all other purchases||$750 cash bonus once you spend $7,500 on purchases within the first 3 months|
|Cashback, No Annual Fee, 0% Intro APR||Discover it® Business Card||$0||1.5% cash back on all purchases||Cashback match on all cash back earned after first year|
|Cashback, No Annual Fee, 0% Intro APR||U.S. Bank Business Cash Rewards World Elite™ Mastercard®||$0||3% cash back on purchases at gas stations, office supply stores, and cell phone/service providers, 1% cash back on all other purchases||$300 cash bonus once you spend $3,000 on purchases within the first 90 days|
|Cashback, No Annual Fee, 0% Intro APR||Wells Fargo Business Platinum Credit Card||$0||1.5% cash back on all purchases, or 1 point on every $1 spent and receive 1,000 bonus points when your company spend is $1,000 or more in any monthly billing period||$300 cash bonus or 30,000 bonus points once you spend $3,000 on purchases within the first 3 months|
|No Annual Fee, 0% Intro APR||American Express Blue Business® Plus Credit Card||$0||2X points on first $50,000 spent in purchases each year, 1X points on purchases after that||10,000 points once you spend $3,000 on purchases within the first 3 months|
|No Annual Fee, 0% APR Period||U.S. Bank Business Platinum Card||$0||N/A||0% Intro APR for 15 billing cycles|
|Travel||Capital One Spark Miles for Business||$0 for first year, then $95||2X miles on all purchases||50,000 miles bonus once you spend $4,500 on purchases within the first 3 months|
|Travel, No Annual Fee, 0% Intro APR||Bank of America Business Advantage Travel Rewards World Mastercard®||$0||1.5 points per dollar spent, 3 points per dollar spent when you book travel through the Bank of America® Travel Center||30,000 miles bonus once you spend $3,000 on purchases within the first 90 days|
*The descriptions and offers of these business credit cards are current as of the date of publishing. Offers and terms may have changed since this article was published.
When should you use a business credit card?
A business credit card can provide short-term funds. It’s usually simple to receive a business credit card, and these cards have less stringent requirements than term loans. This makes business credit cards a good choice for paying sudden, unexpected expenses or obtaining necessary funds during temporary slow periods. They can be used for purchasing inventory or supplies, making online purchases, or hiring services. Since credit cards may offer rewards, you may put regular expenses on your card, then pay it off regularly, gaining points without having to pay interest.
Avoid using a business credit card for large purchases that you will be unable to pay back promptly. For larger purchases and projects, it’s wiser to seek a term loan.
What are the advantages of a business credit card?
Using a business credit card has many advantages.
- Helps you manage cash flow. Small businesses often experience fluctuations in cash flow. A business credit card can help you pay suppliers or deal with unexpected expenses when you don’t have sufficient cash on hand.
- Easier to qualify for than business loans. Compared to a term loan or business line of credit, which typically requires extensive qualifications, a business credit card is much easier to obtain. This can be particularly helpful for startups or new businesses.
- Credit lines are higher than personal credit cards. Since businesses often have to make larger purchases, a high credit line can allow you more flexibility in purchasing.
- Separates your business and personal expenses. Keeping business and personal expenses separate is good accounting practice and can help you remain organized when you file taxes.
- Offers rewards. Business credit cards can offer helpful rewards, such as cashback, rewards points, travel rewards, and other perks. If you regularly use and pay off your business credit card, you can gain benefits.
- Helps you build business credit. Most business credit cards report to commercial credit agencies, which means that reliably paying off your business credit cards can help you improve your business credit score. This can help you obtain better loan options in the future.
What are the disadvantages of a business credit card?
There are a number of disadvantages to using a business credit card.
- High interest rates. Compared to other forms of financing, business credit cards typically have high interest rates, and these interest rates can also fluctuate.
- Potential for debt. It’s important to avoid carrying a balance on your card. If you can’t afford your credit card bill, you could end up paying significant amounts of money in interest and added fees. This will damage your business and personal credit scores.
- Personal guarantee requirement. Business credit cards typically require you to sign a personal guarantee, which means that if your business is unable to pay its bills, you would be personally liable and your personal assets would be at risk.
- Potential for misuse. Credit cards can be physically stolen, compromised through online hacking, or misused by unscrupulous employees who have access to them. It’s critical that you closely monitor your cards to avoid this.
How should you choose a business credit card?
When choosing a business credit card, you’ll need to compare the terms and features of several different cards to find the best fit for your business. Here are some factors worth considering:
- Your typical spending. Many businesses spend a large amount of money in particular categories. It’s a good idea to look at your biggest expenses and anticipated purchases; you may be able to find a credit card that offers rewards in the category.
- Interest rates. Business credit cards commonly have high interest rates. If you’re likely to need to carry a balance, you will want to keep this in mind when picking a card.
- Withdrawal or balance transfer fees. Business credit cards may charge fees for cash withdrawals or balance transfer, and some cards do not allow balance transfers at all. If your business is likely to need a cash advance or balance transfer, keep this in mind.
- Foreign transaction fees. If your business makes a lot of foreign transactions, you’ll want to find a card that doesn’t charge a foreign transaction fee.
- Annual fees. Some business credit cards charge an annual fee. You may wish to avoid cards with fees, but these cards may have better rewards. You’ll need to determine whether the benefits of the rewards will save you enough money to make the annual fee worth it.
- Signup bonuses. You may be able to take advantage of an introductory offer, such as an account credit when you spend a certain amount during the introductory period. If you are already likely to spend that amount, the bonus can be a great perk, but make sure you will be satisfied with the card’s terms after gaining the bonus.
- Introductory offers. A 0% introductory APR offer can be helpful for companies needing to pay startup costs. However, make sure that you are able to pay off the expenses before the introductory period ends or you will have to pay interest. In addition, be aware that business credit cards may not allow balance transfers, so you may be unable to use an introductory period to transfer debt.
- Employee cards. If you plan to give employees credit cards, investigate how your credit card provider handles this. Some companies will allow you to obtain credit cards for your employees to use at no additional cost. It may be possible to set separate limits for these cards.
Can you get a business credit card with bad credit?
It can certainly be more difficult to get approved for a business credit card with a lower credit score, especially for many of the popular cards that offer perks and benefits. Many credit card companies will only approve your application if you have a “good” credit score—typically 670 or above. However, if you do have a lower credit score, there are still many options available to you:
- Cards that don’t consider credit score. Some card issuers do not look at your personal credit score when evaluating your application. The Brex Card is a popular example, looking instead at your business’s financial information, such as available cash, spending patterns, and credit history.
- Secured cards. A common option for those with bad credit is to use a secured business credit card. With a secured card, your credit limit is backed by an upfront deposit you make. So if you make a deposit of $500, your credit limit is usually $500. As you use your card and make on-time payments, you can build on your credit score. A popular example of a secured card is the Wells Fargo Business Secured Credit Card.
- Business lines of credit. A business line of credit may be a good alternative to a business credit card. A line of credit acts as a revolving loan that gives businesses access to a fixed amount of capital that they can withdraw when funds are needed. Some alternative lenders may accept applicants with lower credit scores, and they also typically weigh other factors—such as your business’s financial history—rather than relying so heavily on personal credit score.
How can you get the most out of your business credit card?
There are a number of key steps you can take to make the most out of your business credit card.
Monitor your spending. Keep track of what you spend and make sure you understand your business’s cash flow. Check activity on your card regularly to ensure that it’s being used appropriately and catch any fraud.
Have clear rules for employees. If you have employees who use business credit cards, make sure you have a good system to track their spending. It’s wise to avoid giving business credit cards to too many employees. Have clear written guidelines for how the card can be used, how often it can be used, and how much can be spent. You may be able to set separate spending limits for employees.
Take advantage of rewards and benefits. Many business credit cards offer rewards such as cashback, reward points, or travel rewards. Some cards have higher percentages of cashback in certain categories, like gas purchases, or offer travel perks such as discounts on lodging or flights. To make the most of your rewards, determine what type of purchases you make most frequently and try to find a business credit card that offers rewards in that category—this way, you’ll get benefits just from making necessary purchases.
Avoid carrying a balance. Credit cards typically have high interest rates that are charged on any balance you carry from month to month, which means that carrying a balance can be very expensive. In addition, having a high credit utilization damages your credit score, which can make it more difficult to receive other loans in the future. Ideally, you should keep your credit utilization below 30 percent.
Separate business and personal expenses. If you use your business credit card only for business expenses, it will help you keep your accounting organized and make it easier to file taxes. Many business credit cards provide quarterly or annual statements that can help you track your spending. In some cases, spending is categorized, which can aid you in understanding how your business is spending money.
Be careful with introductory offers. Many credit card companies will have special offers such as an introductory 0% APR or an extra points or cashback reward if you spend a certain amount of money within the first few months. Don’t overspend just to receive the reward and make sure you’re prepared to pay off your card once the introductory APR period is over; otherwise, you could find yourself paying expensive interest costs.
A business credit card is a useful financial tool that most small businesses will need to have. It can help you make online purchases, pay suppliers, and deal with other short-term business expenses. Many business credit cards offer rewards that can be highly beneficial for your company as well. However, it’s important to do your research before picking a business credit card and to make sure that you and your employees use it responsibly.