Millions of Americans operate a small business. Some have employees while many operate as independent contractors or freelancers. Whether you’re just starting out or you’ve been a business owner for years, you may wonder about whether you should get a business credit card.
The short answer is “yes.” If you have a business—even as a freelancer, independent contractor or sole proprietor—getting a business credit card can be a smart move. And if your business is structured as an LLC, S or C Corporation or other business entity, it is essential.
Learn more about choosing a business credit card so you can make the best decision for your business needs.
What is the Purpose of a Business Credit Card?
A business credit card is designed for business expenses and purchases. It allows you to separate your business and personal expenses. It can make it easier to track business expenses, making tax time less stressful.
It can help small business owners legally separate business and personal finances, but keep in mind that many business credit cards do require a personal guarantee. That means if the business doesn’t pay the debt, the card issuer may try to collect from the cardholder directly.
How Do Business Credit Cards Work?
Business credit cards work like consumer credit cards. You’ll be approved for a card, usually with a specific total amount you can charge (the credit limit). You can use the card anywhere cards of that type are accepted; for example, cards that carry a Mastercard or Visa logo can be accepted wherever Mastercard or Visa cards are accepted.
Business credit cards may help you build your business credit history as many report payment activity to at least one of the major business credit bureaus.
The good news is that many card issuers rely primarily on the personal credit score of the person who is applying, as well as income from all sources (not just the business). That means these cards may be available to new businesses as well as more established ones.
Types of Business Credit Cards
Small business credit cards allow you to pay for purchases over time. When you do, you’ll incur interest. This is essentially a line of credit that can be helpful for managing short-term fluctuations in cash flow.
In addition, most cards offer a grace period, allowing you to pay the statement balance in full by the due date to avoid paying interest.
Charge cards require you to pay the balance in full each month. There is no option to carry a balance from month to month.
A few small business credit cards work more like a debit card. Money will be withdrawn from a linked bank account to cover the cost of purchases you make, sometimes daily. However, they are not debit cards because funds aren’t debited from the bank account with each purchase
If you open a small business bank account, you’ll likely be given a business debit card that allows you to access funds directly from that account. Each time you make a purchase, funds are withdrawn from your bank account.
Corporate cards usually refer to business credit cards issued to businesses with multiple employees and strong revenues. Some issuers make these cards available only to businesses with more than 100 employees at several million dollars in revenue, for example.
Finally, some business credit cards are designed for specific uses. Fuel cards are a good example of this. Some allow you only to make fuel purchases (and purchases at gas stations), and may even be limited to certain fuel networks.
Pros and Cons of Business Credit Cards
- Separate business and personal accounts
- Enhanced rewards often available
- Higher credit limits
- May build business credit
A key benefit of business credit cards over consumer cards is that they often come with higher credit limits, and many offer perks designed for small businesses. In addition, most business credit cards can help you build good business credit scores if you pay on time.
- Some consumer protection laws don’t apply
- May have business requirements to qualify
A key drawback of business credit cards is that they are not covered by the CARD Act, a consumer protection law that, among other things, restricts card issuers from raising interest rates if a cardholder is late by just a day with a payment. Most business credit cards reserve the right to raise interest rates on existing balances and/or new purchases if you pay late.
The Best Business Credit Card Options
The best business credit card for your business will depend on your business needs, and how you plan to use the card. If you expect to carry balances, you’ll want to pay close attention to the interest rate that will be charged on the credit line. You may even want to seek out a card with a 0% intro APR.
If you will pay in full, consider a rewards card that offers cash back, travel rewards or points you can redeem for travel, merchandise and more. Some rewards programs can be quite lucrative, especially for businesses that will charge lots of business expenses. Sign-up bonuses can earn extra rewards points or cash back if you meet spending requirements within a certain time period after account opening.
If you anticipate heavy spending, you’ll want a card with a high credit line or, at a minimum, flexible spending limits. On the other hand, if you don’t plan to spend a lot on your card, you may want one with a low (or no) annual fee.
If you have employees, you may want to consider a card that offers free employee cards with spending controls.
Here are some business credit cards that consistently rank as good choices for small business owners:
This card offers aand a welcome offer: .
This Amex card is a popular cash back card with straightforward rewards.
Businesses can benefit from a generous welcome offer:. And those making purchases outside the US will appreciate the fact that the foreign transaction fee is .
Businesses that rely on Amazon products or services may find the rewards on this card appealing.
Business owners who fly Delta can get a lot of value from this card.Plus, earn rewards on an ongoing basis:
Costco shoppers find the fuel rewards on this card especially attractive.
This issuer says it’s more concerned about your business than your credit score, and also features higher credit limits for businesses that qualify. There’s also a welcome offer:
Do They Pull Your Personal Credit For A Business Credit Card?
Most small business card issuers will require you to provide your Social Security number on your application and will check your personal credit reports when you apply. Good to excellent credit scores are usually required to qualify. A few do not check personal credit, but in those cases, the issuer will typically require a legal business entity (LLC or Corporation, for example) and may verify business revenues.
The fact that many credit card companies rely on personal credit rather than business credit to decide when evaluating credit card applications means these cards are often available to startups.
And although credit card issuers often require an Employer Identification Number (EIN) to apply, business credit checks are less common. If the issuer does check business credit it may be to determine if there are any serious problems that would indicate high risk.
Can You Use A Personal Credit Card For Business?
There’s nothing stopping you from using a personal credit card for business-related purchases. No one is going to scrutinize your individual purchases to see if they were business spending.
But your cardholder agreement may restrict purchases to personal expenses. If your business fails and you can’t pay off the debt, the business use of a personal card could create legal headaches. Also using a personal credit card for business purchases could potentially jeopardize the legal separation between you and your business entity.
Finally, if you mix personal and business expenses on a single card, bookkeeping can be much more complicated and you may lose valuable tax deductions.
How Can I Find The Right Credit Card For My Business?
Nav will show you the best credit card options based on your qualifications. Nav customers who use Matchfactor are 3.5 times more likely to qualify for a business credit card.
This article was originally written on April 14, 2022 and updated on September 8, 2022.