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Understanding Business Credit Cards

Business Credit Cards

Having a line of credit can be a lifesaver, which is why many small business owners seek out business credit cards. These credit cards offer a revolving line of credit that can be used to cover business expenses such as paying bills, purchasing inventory, and paying for business-related travel expenses. 

Why You Need a Business Credit Card

Finances are a major concern for most small businesses and a lot of them end up using personal funds for their business and vice versa. Separating your business finances makes it easier to run your business and accurately determine the returns, losses, and expenses of running your business. 

Using a business credit card benefits small businesses in the following ways:

      • Simplified cash flow. One way of adding tradelines to business credit is using a credit card. It provides an additional source of cash flow to help your business pay its month-to-month expenses and pay suppliers. 
      • Streamline employee expenses. Reimbursing employees for the costs they incur on personal cards for the business can be complicated. But with a business credit card, it is easier to manage these costs as all expenses will be captured in one bill. Some business credit cards offer employee cards and give you control over employee spending limits, thus ensuring your business doesn’t overstretch its finances. 
      • Earning rewards. Some business credit cards come with a rewards program that earns your business travel miles, cash back, or points for each eligible purchase you or your employees charge on the business credit card. These rewards can be another way to get more value for your buck. 
      • Travel and purchase protections. Business credit cards, like personal credit cards, offer travel and purchase protections. These protections might include auto rental damage collision waiver, emergency assistance services, no foreign transaction fees, extended warranty protection, and cell phone protection. 
      • Using a business credit card allows you to build a strong credit history. When a business is new, your credit limit depends largely on your personal credit history. Luckily, you can still build your business credit profile by obtaining a business credit card. Coupled with credit card best practices, building a strong business credit profile makes it easier when adding tradelines to business credit
      • Business credit cards come with additional reporting capabilities that simplify the accounting process

When to Get a Business Credit Card

One of the unbreakable rules of business credit is to keep personal and business finances separate. The reason for this is that it makes it easier during accounting and can protect your personal credit score. 

Here are some signs it’s time to get a business credit card:

      • You are charging your business expenses on your personal credit card. It’s never a good idea to mix business and personal finances. Therefore, if you notice that a lot of your business costs come from your personal card, then it’s time to get a business credit card. 
      • It’s easier to qualify for a business credit card.
      • You need higher credit limits. Business credit cards have higher credit limits compared to personal cards. Therefore, if you are planning on adding tradelines to business credit, then a business credit card is the right option. Credit issuers are more likely to approve higher credit limits. 
      • You want to build your personal credit score. Business expenses are often more than personal ones. Therefore, it is easy to overstretch your credit limit which lowers your credit score. Using a business credit card allows you to simultaneously build your personal and business credit profile, allowing both credit scores to go up.

Making the most of your business credit card

There are several tactics you can use to get the most value from your business credit card. Some of these include:

      • Understand your business expenses

Before you decide on the best credit card for your business, you have to examine the expenses that you will fund using the additional line of credit. This allows you to take advantage of the benefits and rewards that come with your card. 

      • Choose the right card 

Once you understand what your business expenses are, the next step is to find a credit card that will help you cover these needs. It’s also a good idea to look at the rewards, interest rates, and signup bonus offers from each card before choosing the one that best fits your business needs. 

      • Choose a card that does not affect your personal credit

As a rule, business credit cards require you to see your personal credit history before issuing the card. However, not all business credit cards report to consumer credit bureaus. When a business credit card reports to a consumer credit bureau, then your business credit directly affects your personal credit score. 

Some credit card issuers primarily report to commercial credit bureaus. Other credit card issuers only report to consumer credit bureaus when you default on payments or when your account is seriously delinquent. Understanding these differences helps you choose the best card for you. 

      • Get a rewards cards

If you do not intend to carry any balance on your business credit card, then it is better to choose a rewards card with a high rewards rate. This allows you to get extra money back, points, or travel miles that you can use to pay for additional business expenses. 

When choosing a rewards card, make sure you understand the true value of your points or travel miles, as well as the minimum redemption requirements and options. This makes it easier to use your rewards. 

      • Authorize employees to use the business credit card

Businesses have to reimburse employees for business expenses that employees incur using personal funds. To prevent such scenarios, you can make employees authorized users of the credit card. Business credit cards that allow you to add employees also provide permissions to limit how much an employee can use and allows you to freeze access by certain employees. 

      • Regularly monitor your credit cards

Monitoring your finances makes sense from a business and legal perspective. It’s a good idea to keep track of the expenses charged on the business credit card to help you understand your business finances. This makes it easier to budget and use a business credit card, only for the required expenses. 

Key Takeaways

A business credit card is a great way of adding tradelines to business credit. It makes it easier to run your business when you have access to higher credit limits and better rewards than you would with a personal card. Based on the card, you are also able to build your business credit history without affecting your personal credit history. 

Featured Image: Megapixl

About the author: Jay Jackson is a researcher and resourceful writer. He eats, sleeps, and breathes finance, investment, tech, blockchain, and cryptocurrency.

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