If you’re a small business owner, getting a business credit card can provide your business with a line of credit and extra rewards.
Whether you choose cashback to boost your bottom line or travel rewards to save money on business trips, a business credit card can make your life easier.
But before you apply for a business credit card, there are a few things you should know. How do they differ from personal credit cards? What benefits can you expect? And how can you choose the right one?
What are business credit cards?
Business credit cards are credit cards tailored to small business owners. They provide rewards on common business expenses, such as purchases at office supply stores, shipping, advertising, and travel.
“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 the Spend Manager, which allows you to add receipts and notes to your transactions.
How are business credit cards different from personal credit cards?
It’s possible to charge business expenses to your personal credit card, but there are essential differences between the two. These include:
Credit limits
Since credit card issuers know that business owners spend more than the average household, business credit cards tend to have higher credit limits than personal credit cards. If you anticipate needing a lot of capital for your expenses, you’ll need a credit card with a higher limit.
Consumer protections
When Congress passed the Credit Card Act of 2009, they offered certain protections to personal credit card holders.
For example, credit card issuers can’t change your APR overnight with no warning. They also can’t charge you outrageous fees for small infractions.
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. However, there’s no legal guarantee.
Rewards
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. These include 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 your business is a small side hustle or sole proprietorship, you may think that you don’t need to build a business credit history. But depending on your plans, it could be a good idea.
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 these loans can be hard 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. Building a business credit history can take time – so the sooner you start, the better.
How to qualify for a business credit card
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.
Before you apply for a business credit card, check your credit score using a service like Credit Sesame or myFICO to get an idea of where you stand.
If your score is less than excellent, you may be able to get a card tailored for business owners with fair credit. Check out the Capital One® Spark® Classic for Business.
But if your credit is poor, you’ll want to work on improving your credit score before you apply for a card.
If you’re not in a hurry to get a business credit card right away and your credit is poor, consider making changes to raise your credit score. This will win you better offers with lower rates and flashier rewards. Focus on making improvements in these five categories, which determine your credit score:
- Your payment history, which accounts for 35% of your credit score.
- Your credit utilization, the percentage of your credit limit that you’re actively borrowing, which determines 30% of your credit score.
- The length of your credit history, which determines 15% of your credit score.
- Your credit inquiry frequency, the frequency of hard inquiries for your credit score, determines 10% of your credit score. To clarify, when you apply for a loan or a new card, the issuer requests your credit score. When a credit bureau sees many of these requests in a row, it indicates that you’re borrowing heavily. This can be a risk factor for lenders.
- The mix of credit types you have determines 10% of your credit score. These include secured and unsecured loans, credit cards, and mortgages.
To get approved for a business credit card, you’ll need to share some information about your business. These include its EIN (not applicable if it’s a sole proprietorship), 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
If you’re a relatively new business, you may not feel comfortable getting a business card that charges an annual fee. Getting a no-annual-fee business credit card will help if you’re just starting out and you don’t have any revenues.
But if your business is well established and you spend a lot of money, you may get more benefit from a business credit card that charges an annual fee.
Business expenses
As with personal credit cards, business credit cards can vary in the type of rewards they offer to cardholders. 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% cashback on certain purchases. Of course, that won’t do you any good if you don’t spend much in those categories.
Other cards may offer a flat rewards rate on all purchases. This 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
Most major business credit cards charge high interest rates, but you may be able to find a lower APR if you look to your local credit union. If you’re looking to get a lay of the land, SuperMoney has rounded up the 50 most reliable credit unions for you.
Fees 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, get a card that won’t charge that fee.
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 paying. “Never pay the minimum payment due if you want to pay your card off or down significantly,” says Lee.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.
