6 Reasons to Get a Business Credit Card
Building your business’ credit rating and obtaining a higher credit limit aren’t the only reasons many businesses opt for business credit cards. Here are five others:
Smoother record-keeping:
Owners can save a significant amount of bookkeeping time by separating business spending from personal spending. This proves particularly useful for periodic accounting, applying for a loan, and during tax-filing times throughout the year.
Savings perks:
These may include cash back, with higher percentages offered on frequent business expenses such as wireless phone services, office supplies, shipping, and advertising. Some lenders also may offer a 0% introductory APR business credit card. Paying the balance before its due date also may trigger a higher cash back with certain cards.
More rewards:
A common practice for new business credit card accounts is to offer higher rewards at the start for reaching a specific spending threshold. Be sure to check the American Express business cards page to see what the current business credit card reward offers are.
Monitor employee spending:
A business credit card creates an easy way for employees to make purchases for the business. As your business grows in financial flexibility, buying power and personnel, you may begin to use employee credit cards. This can help accelerate cash back and rewards points growth and allows for better monitoring of employees’ business spending.
Cash flow management:
Business credit cards can be used as a tool to manage cash flow irregularities and keep the cost of financing working capital low. Business owners can use business credit cards to make payments in situations where cash flow gaps may exist, like when customer payments have not been received. Provided that cards are charged during the interest-free period and the balance is paid off before the period is over, this can be a welcome solution.
Other Considerations When Applying for a Business Credit Card
There are a few things to consider before selecting a business credit card.
Just as people do, businesses develop a credit history and, in turn, a credit score. Business and personal credit scores are different and mostly independent, but there can be times when the two become intertwined. Some lenders may require a personal guarantee from the business owner or another person if the owner lacks enough credit history. In such instances, a business owner may end up with personal liability for business credit card debt. Business owners may be personally liable if they are sole proprietors as well.
In addition, when you apply for a business credit card the issuer may investigate both your business and personal credit history. That could include a “hard inquiry” on your personal credit history, which often results in a temporary drop of a few points in your credit score.
Different business credit card issuers may have different policies and responsibilities for the cardholder so always remember to carefully review terms in the business credit card agreement.
The Takeaway
Using a business credit card allows a business owner to easily separate work and personal expenses, better manage business expenses, and all while getting greater rewards and a higher spending limit than a personal credit card. Business credit cards vary in their offerings, and each business owner should determine which card structure best fits their business needs.
This article is intended for general informational purposes only and does not constitute legal advice or an opinion on any issue. It should not be regarded as comprehensive or a substitute for professional advice.