7 Reasons to Get a Business Credit Card

Takeaways: Business Credit Cards Help Manage Finances and Build Credit

• Business credit cards are valuable tools for entrepreneurs and small business owners, offering fast financing, separation of business and personal expenses and cash-back rewards.
• When used correctly, a business credit card can help businesses build credit history and manage cash flow.
• Use cards judiciously, keep your business spending within your budget and seek credit cards with low interest rates and low fees to maximize benefits.

Many business credit cards offer rewards and benefits tailored to business needs, such as cash back or travel points on eligible purchases. They can also simplify separating your personal and business expenses.

Here are seven reasons to consider a credit card for your business.

1. Fast Access to Financing

One recent survey from the University of Chicago noted that many entrepreneurs and businesses rely heavily on business credit cards compared with other financing options, such as loans, credit lines or internal funding. That reliance increases when access to traditional forms of lending are limited. The report noted several advantages of business credit cards, including:

• Quick access to financing when cash is tight and invoices aren't being paid.
• Accessibility and flexibility.
• Convenience, especially for younger firms, smaller firms, and those with lower cash reserves.

3. Earn Rewards for Your Small Business

Some business credit cards offer travel rewards, bonus points or cash back on eligible business purchases, such as travel, dining or office supplies. Many credit cards explicitly developed for business will offer categories such as these or offer more broad-based rewards for all purchases.

Use points to book travel or redeem for cash back, gift cards or other rewards to offset everyday business expenses.

Ideally, you can find a card without limits on how much you earn or categories to track. A cash-back card that credits your account automatically can reduce any administrative steps.

4. Build Credit History and Grow Your Business

When you first apply for a business card, the card issuer will typically require your Social Security number and personal credit score. But when used correctly and reported to business credit bureaus, a business credit card helps establish a business credit history, which can improve future financing options and interest rates for business purchases.

Although a sole proprietorship technically can continue to use a personal business card, doing so won't build business credit history.

Business credit cards may offer higher credit limits than personal credit cards, providing flexibility for larger business purchases, helping to finance business growth and expansion.

Once you get a business card, you can also always ask for a credit limit increase on an existing account.

A business credit card can help you invest in new equipment, hire employees or expand marketing efforts — particularly if it offers a lower interest rate and cash advances.

5. Enjoy No Foreign Transaction Fees and Other Benefits

Some business credit cards offer extra advantages, coverage, and benefits for purchases and travel.

These can include:

• No annual fee
• Extended warranty protection for business purchases
• Purchase protection
• Worldwide travel accident insurance
• Travel and emergency services, including medical referrals and emergency translation
• Collision damage waiver for car rentals

6. Use Small Business Credit Card Tools

A credit card issuer may offer online apps and other valuable tools to help your small business track expenses, make payments, observe your spending habits and access rewards.

However, as the University of Chicago survey points out, big interest payments can eat into a business's revenue and hiring, causing financial distress. If available, use the card issuer's expense tracking tools to manage cash flow and make on-time payments to avoid late fees and interest charges.

7. Get Help with Cash Financing

Credit cards can help cover short-term expenses if you're confident in your ability to pay off the card on time.

The grace period between monthly payments allows your accounts receivable to catch up with your accounts payable. Then, pay off your credit card balance as soon as it's due to avoid carrying a balance and accruing interest on your debt.

Most credit cards don't charge interest on purchases if the balance is paid within 30 days of the statement date. That's effectively a 30-day loan with 0% interest.

Tax Considerations

Having a business credit card can help you more easily review and separate business expenses at tax time.

But you should also speak to your tax professional about current tax laws regarding credit card use, sign-up bonuses and cash-back points. The IRS generally treats credit card rewards as rebates, but you can't deduct rewards-point purchases as business expenses.

Fee Considerations

Any benefits you get from a business credit card could be wiped out by the following:

• High APR and monthly interest payments when you carry a balance
• Annual fees
• Other fees, including late-payment fees

Many business cards offer cash advances, allowing you to withdraw cash using your credit card balance. However, these withdrawals may come with fees and immediate finance charges.

Final Words

A business credit card can be a valuable tool for managing business expenses, building business credit history, and accessing rewards and benefits. By choosing the right card, paying on time and using other credit-building habits, businesses can improve cash flow, reduce financial risk and achieve long-term growth.

However, small business owners should be cautious about interest rates, which can be higher than those of other loan types. They're good for short-term purchases but may not be suitable for long-term financing or very large purchases.

Consider factors such as APR, fees and rewards when selecting a business credit card. Use online resources and tools to manage business finances, track expenses and access rewards.

FAQs

What Is the Point of a Business Credit Card?

A business credit card helps you separate business and personal expenses, build credit and collect cash back and points.

What Are the Cons of a Business Credit Card?

It's important to watch interest rates and fees when you have a business credit card, and to manage your balance so you don't face unmanageable debt.

What Is Required To Get a Business Credit Card?

A business card from a credit union will typically require credit union business membership¹, which includes your business name or DBA name, state business registration number, federal tax ID (which you use to file business taxes), and your NAICS (North American Industry Classification System) six-digit code on your federal tax return or Schedule C. You will also need an approved business credit card application.

Can a New LLC Get a Business Credit Card?

Yes, it's possible for a new LLC to get a credit card, as the card issuer will review your personal credit history and credit score for approval. However, you'll need to ask the business card issuer about income requirements, particularly if you don't have any gross revenue for the prior year. Your issuer may instead ask for this year's projected annual revenue and net income.

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