What are business credit cards?
Business credit cards are tailored specifically to small business owners. They often provide benefits and rewards on common business expenses, such as purchases at office supply stores, shipping, advertising, travel, and gas.
“Business credit cards usually have a variety of rewards and point options,” says Kristin Lee, owner of KLBM, an entertainment business management company.
She adds, “I always advise my clients to think of which types of rewards they are most likely to tap into, be it travel, tech, discounts on supplies, or others.”
Some business credit cards also offer specific features to make it easier to track and organize your expenses, which can be helpful when you file your taxes.
For example, American Express offers business owners various tools, such as the Spend Manager, which allows you to add receipts and notes to your transactions.
How are business credit cards different from personal credit cards?
If you own a business, you might be wondering whether it’s necessary to have a business credit card. It’s not a requirement, but there are some differences to consider between business and personal credit cards.
Since credit card issuers know that business owners typically spend more than households, business credit cards tend to have higher credit limits than personal credit cards. So, if you anticipate needing a fair amount of capital for your business expenses, it makes sense to get a credit card that gives you more room to spend.
When Congress passed the Credit Card Act of 2009, the new law offered certain protections to personal credit card holders.
For example, credit card issuers can’t change your APR overnight with no warning, and they can’t charge you outrageous fees for small infractions.
But those same benefits aren’t offered with business credit cards. Of course, most major credit card issuers still extend those same protections to business credit card holders, but there’s no legal guarantee.
Personal credit cards often provide rewards for everyday expenses such as groceries, gas, and eating out.
On the flip side, business credit cards tend to offer rewards on business-related purchases, like internet and phone bills, computer hardware and software, and more.
Depending on your business’ typical expenses, one type of card may be better than the other for your needs.
Why it’s beneficial to build business credit
If you ever want to expand your business in the future, you may need a small business loan to do so. The problem is that small business loans can be tough to get if your business has no track record with credit.
Building your business credit can make it easier to get funding when you need it without having to rely on your personal credit history. As with your personal credit history, building a business credit history can take time – so the sooner you start, the better.
How to qualify for a business credit card
Even if you have a well-established business credit history, business credit cards typically rely on your personal credit history when you apply. This means that you typically need to have good or excellent credit to get approved for a card — so, a FICO credit score of 670 or higher.
If your score doesn’t quite meet those expectations, you may be able to get a card like the Capital One® Spark® Classic for Business, which is tailored for business owners with fair credit.
But if your credit is poor, you’ll want to work on improving your credit score before you apply for a card.
To get approved for a business credit card, you need to share a few things about your business, such as its EIN (you won’t have one if it’s a sole proprietorship and that’s OK), your annual revenues, and your monthly expenses.
If you have a new business, you may not know these numbers, but don’t worry – credit card issuers understand that new businesses can take a while to get off the ground.
How to pick the right business credit card
The right business credit card for you depends on a few different factors. Here’s where to start.
Stage of your business
Depending on how established your business is, you may or may not feel comfortable getting a business card that charges an annual fee. Getting a no-annual-fee business credit card is generally a good idea if you’re just starting out and you don’t have any revenues.
But if your business has been around for a while and you spend a lot, you may get more benefit from a business credit card that charges an annual fee.
As with personal credit cards, business credit cards can vary in the type of rewards they offer to cardholders. So, it’s important to know the type of expenses your business incurs and to match those expenses to the right card.
For example, some cards offer up to 5% cash back on certain purchases, but that card likely won’t do you any good if you don’t spend much in those bonus categories.
Other cards may offer a flat rewards rate on all purchases, which may be better for a business that doesn’t spend a lot in one area.
Other business-related perks
Not all business credit cards offer special benefits to business owners. So, if you want such perks, you’ll have to look for them. Compare several business credit cards to see what type of benefits they offer and how they can help you with your business.
“Business credit cards usually also afford employee cards and controls,” says Lee, “so that is extremely beneficial for business owners with teams that need to use cards.”
Fees and interest
Also, fees can vary depending on the card and the card issuer. For example, most business credit cards charge foreign transaction fees, but some don’t. So, if you travel abroad for business or plan to, get a card that won’t charge that fee.
“The minimum payment almost always ensures that you’re barely paying more than your accrued interest, and that debt will hang over your head for what feels like forever.”
“Make sure that you are aware of your card being a proper charge card or a credit card. Do you have to pay in full each month or can balances carry forward without penalty?
“If you must carry a balance, keep in mind what interest rate you are being charged. Never pay the minimum payment due if you want to pay your card off or down significantly,” says Lee.