Business credit cards do more than offer high rewards on business expenditures. They separate your personal and business finances and can help you build business credit, showing creditors and vendors how likely you are to make payments on time.
Read on for an overview of how these cards work and how to choose the best one for you.
What is a business credit card?
Business credit cards provide business owners with a separate line of credit from their personal ones, which can make keeping track of a company’s expenses or filing taxes more efficient.
These cards are designed with businesses in mind, and often feature higher credit limits than personal credit cards and free employee cards with customizable spending limits. They also include account management tools such as automated quarterly and year-end summaries and free access to accounting programs, like Quickbooks.
Business credit cards offer generous rewards for everyday business expenses, including office supplies, phone plans and social media advertising. And most cards also have additional bonus rates for popular everyday spending categories like dining, gas and travel.
Difference between business credit cards and personal credit cards
One of the main differences between business and personal credit cards is to which credit agencies issuers report their activity and how they impact your credit history.
The account activity on personal credit cards gets reported to the three major credit bureaus — Experian, Equifax and TransUnion. These agencies collect consumer financial information, such as payment history and monthly balances, so personal credit cards directly impact your credit report.
On the other hand, activity on business credit cards gets reported to business credit bureaus, such as Dun & Bradstreet. For this reason, business credit cards generally don’t affect your personal credit score. However, while business card issuers mainly report to business credit bureaus, they might report late or missed payments to consumer credit agencies, which impacts your financial history and odds of getting approved for new credit lines.
Another difference between personal and business credit cards is that the latter are not protected by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). This act includes several consumer protection provisions, such as a requirement that credit card issuers alert customers of interest rate hikes at least 45 days in advance.
However, although the CARD Act only applies to consumer credit cards, some business card issuers do add similar protections to their cards by choice.
Types of business credit cards
Here’s a rundown of how the differences between the three main types of business credit cards:
Small business credit cards
Most business cards are available for all business sizes; however, some cards offer perks and benefits that could benefit businesses that don’t have the staff or level of operational expenses that big corporations have. These business cards can benefit small businesses and even individual freelancers.
Like consumer credit cards, small business credit cards have point programs that allow the primary cardholders to earn points for rewards such as hotel nights, flight tickets, cash back and gift cards.
Other business credit cards earn cash back rewards, which can typically be redeemed as statement credits or checking account deposits. However, nowadays, it’s common to find business cards that are advertised as cash back credit cards but also let cardholders redeem their rewards as gift cards, travel bookings or through online store checkouts, for example.
Most small business credit cards require a personal guarantee, which means that if the company ever goes bankrupt or is behind on payments, you’ll be personally liable for the remaining debt on the card.
Corporate credit card
Corporate credit cards are usually geared towards larger corporations with a well-established business history, significant revenue and hundreds or more employees.
A business must be registered as C-Corp, S-Corp or LLC to qualify, not as a sole proprietorship or partnership (although some card issuers welcome all business structures). Also, the company is responsible for paying the card, not the owner directly. This means that approval of the account is based mainly on the company’s finances — unlike small business cards, which take into account an individual’s credit report.
Besides these features, corporate cards are no different from small business ones. They both offer reward rates for spending categories and may feature business and travel perks such as statement credits for software purchases or discounted airfare.
Business charge cards don’t have pre-set spending limits like regular credit cards do. Instead, they must be paid in full each month and do not give the option of making minimum payments. Because you’re paying your debt in full every month, these cards don’t charge interest either. If the bill is not paid on time at the end of a billing cycle, you’ll incur late fees and other penalties, depending on your card’s agreement.
Not having an established credit limit doesn’t mean charge cards can be used indiscriminately. Each transaction you make is approved individually based on your income and payment history.