7 Reasons to Consider a Business Credit Card

It used to be daring and unusual to march off to start your own business. Not so any longer. Today, solopreneurs, freelancers, contract workers, “permatemps” and other non-employed workers make up one third of the American workforce. Still others successful operate small and micro businesses, employing 1-50 workers. Some of these folks are surprised when they venture out to independence and find themselves confronted with challenges seemingly unrelated to the business they engage in.

Good financial management is critical to operating any successful business. Separating your business finances from personal is a huge step in the right direction. Getting a business credit card offers several distinct advantages.

Keep business and personal finances separate

The more money going in and out of your business, the more of a nightmare bookkeeping and taxes are when it comes time to separate personal from business. If your business is incorporated, it’s critical to avoid co-mingling funds. The legal protection afforded to you, the person, by the act of incorporation is voided if you fail to keep personal money out of the business and vice versa. If your business is ever sued, a smart lawyer will immediately seek to sue you, the person, alongside your company on the basis that you co-mingled funds and otherwise failed to keep business and personal assets separate.

Build business credit

Using a business credit card responsibly builds a good credit history for your business, separate from your own personal credit history. Initially, you’ll have to personally guarantee repayment. Approval will depend on your personal credit score and credit history, and your credit is intertwined with that of your business. Later on, once you build a credit history for your business, you’ll be able to apply for financing based solely on the business’s credit, allowing you to further separate business finances from personal. It’s important to note, though, that positive financial behavior on your business account might not show up on your personal credit history. Default, however, will show up on your personal credit report and will negatively affect your credit score.

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Build credibility

Presenting a vendor with a business credit card immediately makes you look more professional and organized. Subtle non-verbal cues like this can have a positive overall effect on their perception of you and subsequently how you are treated.

Tax benefits

You should pay off your balance every month. But if you don’t, the interest you pay on your business account is tax deductible.

Budgeting and bookkeeping

Making all of your business purchases with the credit card helps you keep an accurate eye on the budget. You can give each authorized employee his or her own card and track exactly how it is used. You’ll also have improved cash flow and the opportunity to generate revenue before paying for certain supplies or other expenses. The credit card’s grace period effectively becomes an interest-free loan. Making all of your purchases on one account may also allow you to categorize and limit spending more easily than you could in a cash-based system.

Sign-up bonuses and rewards

Many business cards offer incentives to open and use the account. For example, Chase Ink offers five times rewards for certain qualifying purchases: office supplies and cellular phone, internet, landline and cable t.v. service. One reward point is generally worth about 1%, so this offer nets the card owner a 5% bonus on those purchases. Rewards can be redeemed for statement credit or other items.

Purchase protection

Like personal credit cards, business cards come with a certain amount of protection and free insurance for purchases made using the card. For example, most major business cards offer free auto rental collision damage waivers. Others offer price guarantees on all purchases made with the card.

A word of caution: federal law does not give the same protections to business credit cards as it does to consumer credit cards. Be aware that you take on more risk by opening a business credit card account. The CARD Act of 2009 applies to consumers, not businesses.

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