Many small business owners never seriously consider the differences between a business versus personal credit card. They use their personal credit cards to meet their business needs. Depending on the nature and needs of your business, a business credit card may offer more benefits and flexibility than a personal credit card. These differences can make an impact to your business’ bottom line.
Fundamentally, business credit cards and charge cards work much like personal credit cards. All three may or may not come with a credit limit, as some card issuers have eliminated pre-set spending limits to offer businesses expanded buying power. Of course, expanded doesn’t mean unlimited – spending power adjusts with a business’ use of the card, payment history, credit record, documented financial resources, and other factors [1]. While a business charge card must be paid in full each month business credit cards, like personal cards, typically allow a minimum payment per month, and you pay interest on any remaining balance. That way, you can optionally pay down personal or business credit card balances gradually and function as a way to access additional business financing options.
Benefits of Business Cards vs Personal Cards
In important ways, business and personal credit cards are very different. Here’s a quick overview of business credit cards’ key benefits over personal cards, which this article will then go into in more detail:
- Potential for higher spending limits than personal cards.
- Credit bureaus may boost your business’ credit score if you have on-time payments and low-credit utilization. Having a higher credit score could open access to bigger and broader forms of business finance.
- Rewards programs that emphasize business spending categories – and could help improve the business’ bottom line.
- Business-tuned tools that help you efficiently track expenses in different categories, or even by individual employees, manage cash flow, and download information into your business accounting software.
Who Can Get a Business Credit Card?
Most people who charge for a good or a service are eligible for a business credit card or charge card, including freelancers, tutors, and ride-sharing drivers. You don’t need to form a corporation to have a card-eligible business; sole proprietorships and partnerships are fine.
The Details of Business Credit Cards
When approving accounts and setting spending limits, business credit card and charge card issuers consider your business’ credit score, which may consider factors such as revenue, cash flow, and supplier payment history, as well as your personal credit score. If you’re the owner of a new business that has yet to establish a credit record or if you are applying for some small business cards, the card could be issued on your personal credit score alone.
Either way, spending limits can better reflect the needs of a business’s spending habits. This can be a benefit for a fast-growing new business with high expenses.
Do business credit cards affect personal credit scores?
Does business credit affect personal credit? That depends. In some cases, your business card usage will impact both your business credit score and your personal credit score. As always, it’s a good idea to read the fine print when applying for a business credit card, to see whether it will impact your personal credit.
It’s important to know that business and personal credit scores may differ. Sometimes in addition to the two main credit bureaus, TransUnion and Equifax, business credit scores may be reported by an additional reporting agency like Dun & Bradstreet.). For a new business, managing a business credit card well can help build your business’ credit score, potentially giving you access to other forms of credit and business financing such as short-term loans, or working capital solutions However, if your business fails to maintain timely payments, your own personal credit score could be adversely affected, since some issuers also do report business credit information to personal credit bureaus. It may be worth checking which bureau(s) your business card issuer reports information to.
Rewards Points and Cash Back Programs for Business Credit Cards
Like personal cards, business credit cards typically have rewards points or offer cash back. Reward programs on business credit or charge cards may be better suited or more lucrative for purchases made in business categories. They may offer cash back on purchases, or an introductory bonus subject to a spending threshold being reached within a given timeframe – often three months (check American Express Canada’s business card shop to check the latest offerings). Another key difference of business credit cards vs personal credit cards: introductory bonuses are typically higher.
Many businesses find that a carefully chosen rewards or cash back program can reduce business costs. However, if you don’t make many qualifying purchases, a business credit card may not be the best choice for you, since you might not use it enough for the rewards program, cash back, or introductory bonus to offset higher fees and interest.
Getting the Most Out of a Business Credit Card
Business credit cards come with many different rules, benefits, and options, so it’s worth shopping around to find the right card for your business. Think about how you plan to use the card: Will you make sufficient use of the rewards program to offset any fees? How might the other features help your business?
For example, if you or your employees travel a lot for the business, you can choose a business travel credit card with a travel-oriented rewards program such as discounts on air fares, hotel bills, and rental cars. You’ll have one statement to check, and business credit card issuers typically provide detailed bills, so the individual travel invoice is easy to spot.
If your firm has high gas expenses, you could consider a credit card that offers higher rewards and discounts at participating gas stations.
You can also use a business credit card or charge card account to manage employee expenses. Your employees’ spending also can appear on a single itemized statement, enabling you to track expenses closely and keep control of costs.
Many business credit card issuers provide online tools to enable you to track expenses, link them to invoices and receipts, and download statements into your own accounting software making it easier to keep an eye on cash flow. Using a business card to streamline and automate expense management can leave you more time to develop your business.
The Takeaway
The key differences of business vs. personal credit cards can lead to benefits for any business, even one-person operations with very low expenses. The benefits increase, though, for businesses incurring larger expenses, or with employees who spend on the business’ behalf. Then, the expense management, accounting integration, and rewards that come with a good business credit card can create a larger benefit for your bottom line.
[1] No Pre-Set Spending Limit on purchases does not mean unlimited spending. Your purchases are approved based on a variety of factors, including your credit history, account history, and personal resources. Proof of resources and security may be required.
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.