If you own a small business, you likely have quite a few expenses associated with operating your company. Business credit cards can offer a way to manage and even take advantage of those business expenses, while building your credit.
Key Points
• Business credit cards help keep business expenses separate from personal expenses, making financial management easier.
• Responsible use of business credit cards can build business credit history and improve business credit scores.
• Many business credit cards offer rewards and cash back on business purchases, providing additional benefits.
• Business credit cards may have higher interest rates than personal credit cards or business loans.
• Overspending can be a potential drawback of using business credit cards if not managed properly.
What Is a Business Credit Card?
Business credit cards offer a way for a company to charge for business-related expenses. Business credit cards function similar to personal credit cards, but are specifically for businesses and their unique needs. Just like there are business checking account options and personal checking account options, there are also business and personal credit cards.
How Business Credit Cards Work
Business credit cards work similarly to personal credit cards by providing businesses with a line of credit for purchases. Just as with personal credit cards, a company will put charges on the business credit card and then pay the card’s balance.
Key Features That Differentiate Them From Personal Cards
When differentiating between personal credit vs business credit cards, there are some key differences. Business credit cards usually have higher credit limits. Issuers consider both personal income and business revenue when determining credit limits for business credit cards. Personal credit cards only consider personal income when determining credit limits.
Another difference is that business credit cards primarily report to business credit bureaus, which affects your business credit score. Personal credit cards usually report to consumer credit bureaus. However, business credit cards can impact your personal credit score because your personal credit score is part of business credit card applications. Also, business credit card issuers can report negative activity to consumer credit bureaus.
One thing to keep in mind is that business credit cards have fewer consumer protections. Business credit cards aren’t required to provide some of the consumer protections that personal credit cards have to.
Pros of Business Credit Cards
There are several pros of using business credit cards. One of the main reasons why business owners use business credit cards is to keep business expenses separate from personal expenses. A business credit card is an easy way to keep track of your business expenses, especially when it comes time for taxes. Combining personal and business expenses is not advised.
If you have a business, it is important to have a good business credit history if you need to apply for a loan or other business credit. Responsible usage of business credit cards can help in building business credit history and improving your business credit score.
Many business credit cards offer the chance to earn rewards and cash back. Depending on the card, you might earn rewards or cash back for business-related purchases, like shipping, office supplies, internet, or travel. Plus, credit card rewards are not considered income, so they are not taxable. Some business credit cards also offer additional benefits like purchase protection or extended warranty on qualifying items purchased with the card.
Cons of Business Credit Cards
Although there are many benefits to having a business card, there are also downsides. Like all credit cards, business credit cards may be tempting to overspend. If your business has financial hardship and can’t pay the credit card bills, it could actually negatively affect your personal credit.
Small business credit cards also usually have higher interest rates than personal credit cards or business loans like startup business loans. If you pay off your credit card balance, however, then it won’t be an issue.
There are also fees associated with most business credit cards. If you forget or are unable to pay your credit card bill by the due date, you will likely be charged a late fee.
When a Business Credit Card Makes Sense
A business credit card may make sense if you want to keep your business expenses separate from your personal expenses. Also, if you are interested in building your business credit history and want to earn rewards on business expense spending, business credit cards may be a good fit for your business.
Alternatives to Business Credit Cards
If a business credit card doesn’t make sense for your situation, there are alternatives. A business line of credit or a small business loan are two popular alternatives to a business credit card.
Business Lines of Credit
A business line of credit, like a small business loan, is an alternative to a business credit card if your business needs a way to cover short-term business expenses. A business line of credit works more like a credit card than a traditional loan. With a business line of credit, you can access financing through revolving credit up to an approved limit, instead of receiving a lump sum like with a traditional loan. You then make monthly payments on what you borrow from the business line of credit, and are only charged interest on what you owe.
Small Business Loans
Small business loans are also called commercial loans. A small business loan can be used as financing for business-related activities like purchasing inventory, starting a business, funding operating costs or managing cash flow. Small business loans can be used for equipment financing or for other business expenses. There are short-term and long-term small business loans.
Tips for Choosing the Right Business Credit Card
When choosing a business credit card, you want to understand your business expenses and what categories you spend the most on. For example, if your business spends a lot of money on office supplies, you may want to choose a card that offers rewards for that category of spending. Some business credit cards offer rewards as well, so compare those to find one that will best fit your preferences. Of course, you should also make sure that you can qualify for the business credit card that you want. Most business credit cards require a good personal credit score, but some accept applicants with a fair credit score.
The Takeaway
Business credit cards can be a great way to keep track of your business expenses, build credit, and earn rewards. However, business credit cards may not be a good choice for all businesses. If you might overspend on a business credit card or don’t have good credit but still need a way to cover short-term business expenses, you could look into alternatives like business lines of credit or small business loans.
If you do decide to apply for a business credit card, be sure to do your research to choose the right one for your business’s qualifications and needs. SoFi’s marketplace can help you find the right business credit card for your business’s needs.
If you’re seeking financing for your business, SoFi is here to support you. On SoFi’s marketplace, you can shop and compare financing options for your business in minutes.
FAQ
Do business credit cards affect personal credit?
Business credit cards can impact your personal credit score because your personal credit score is part of business credit card applications. Also, business credit card issuers can report negative activity to consumer credit bureaus.
Can I get a business credit card as a sole proprietor?
Yes, a sole proprietor can get a business credit card. If you apply for a business credit card as a sole proprietor, the lender will likely use your personal credit history for qualification. This can be an option if you want to get a business credit card without a business, like if you are a freelancer.
What credit score is needed for a business credit card?
Minimum credit scores for business credit cards will vary by the lender and product. In general, you need a FICO credit score of at least 670 to qualify for a business credit card.
Are business credit card rewards taxable?
Business credit card rewards are not considered income, so they are not taxable.
How many business credit cards can a company have?
There is no formal limit to the number of business credit cards a company can have. However, issuers have different qualifying guidelines and restrictions for their own products.
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