What Is a Business Credit Card and How Does it Work?

By Michael Grace | American Express^® Freelance Contributor
5 Min Read | May 11, 2022

Summary

What Is a Business Credit Card?

A business credit card is similar to the personal credit card you keep in your wallet, only it’s intended for use by a business and can help build a company’s credit profile for future borrowing. It’s not meant for buying breakfast after you drop off the kids at school in the morning, unless that breakfast includes, for example, meeting with a client to go over designs or a vendor to discuss new products for your business. Business credit cards come with expense monitoring and other tools meant to help manage business spending. And because businesses typically spend more than individuals, business credit cards usually offer more value in perks and rewards.

How Do Business Credit Cards Work?

Business credit cards work much the same way as personal credit cards, though they generally offer a higher spending limit and better rewards programs. They also include business-centric tools to track spending in various categories or by employee. Oftentimes, expense information can be downloaded and easily imported into your business accounting software. You can apply for a business credit card with or without having an employer identification number (EIN), sometimes also referred to as a tax ID number – a kind of Social Security number for your business.

Lenders typically offer various types of business credit cards. Some may have higher or lower annual percentage rates (APRs), depending on the creditworthiness of the business or, if the business doesn’t have a sufficient credit history, its owner. They also differ in reward structures: Businesses’ spending requirements differ – some may spend a lot in marketing and advertising, while others spend more in travel or office equipment – so different reward structures are needed to match different businesses’ needs.

It's a good idea to get a firm understanding of your business’ spending needs before deciding which is the best business credit card to apply for. For example, a small business owner just starting out may opt for a better cash back option to help pay down the monthly bill with statement credits. A more established business owner, or perhaps a business owner who travels a lot for work, may want to consider a card that racks up travel rewards faster or offers discounts on airlines and hotels at the time of booking. If much of that travel involves driving, consider a business credit card that offers a higher cash back option on gas purchases.

5 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:

Separating business spending from personal spending can save owners a significant amount of bookkeeping time. This proves particularly useful for periodic accounting, applying for a loan, and during tax-filing times throughout the year.

Travel perks:

Certain business credit cards provide access to airline VIP lounges, free checked baggage, or discounts on hotel reservations. Some cards also may offer free companion tickets. 

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. For example, you could earn 50,000 bonus rewards points if you spend $10,000 on the card in the first three months of card membership. Points multipliers also may be offered in designated categories such as gas stations or car rental agencies.

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.

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.

In addition, when you apply for a business credit card the issuer may look into 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.

It’s also worth knowing that the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which defines consumer credit protections, does not cover business credit cards. So, limits pertaining to how or when credit card companies can charge fees and raise interest rates don’t apply to business credit cards. However, many issuers extend these protections to business credit cards anyway, so it pays to ask about that and carefully review terms in the business credit card agreement.