10 advantages of having a business credit card

Updated on: January 9, 2024 · 4min read

If you run a small business, you can probably benefit from having a business credit card. Keeping your personal and business credit card purchases separate is a good idea, regardless of whether your company is organized as a sole proprietorship, partnership, limited liability company (LLC), or corporation.

The preferred practice is to obtain a separate credit card in the business name. However, if this is not possible or desired, for whatever reason, an alternative is to have a designated personal credit card that you use only for the business.

A credit card for small business offers the same benefits as a personal card, as well as some unique business credit card benefits.

These benefits include:

1. Convenience. It is much easier to carry a business credit card in your wallet than to rely on having a large amount of cash or your checkbook when a purchase is needed. A credit card is especially convenient for online purchases. And with the trend toward a cashless economy, a credit card may be the only way to pay for certain goods and services.

2. Purchase protection. With most cards, you have the ability to dispute any improper charges on the account and to avoid making payment until the dispute is resolved. Many credit cards offer some form of purchase protection in the event goods you purchase are lost, stolen, or not delivered.

3. Reduced cash-flow problems. Many new business owners start out operating on a tight budget. A business credit card can enable you to make vital purchases even if you are temporarily short on funds. This can even out your cash flow, making your business less subject to short-term ups and downs.

4. Easier than loan qualification. Quite often, the process for getting a business credit card is faster and less of a hassle than obtaining a formal small business loan. This is especially true if you don't have significant collateral, which is often required by banks and other lenders for either a traditional loan or a business line of credit.

5. Categorization of expenses. Many cards provide a breakdown of expenses by category, such as hotels, meals, office supplies, etc., which can help make accounting and tax filing easier. It can also be useful in the event you become subject to a tax audit.

6. Separation from personal expenses. To maintain good bookkeeping, your personal expenses should be kept completely separate from business expenses. Having a separate credit card just for business keeps accounting tidy and can safeguard your personal assets by not mingling them with those of the business.

7. Building company credit. Building up a good payment history can help establish and improve your company's credit score of. Just as improving your personal credit score can enable you to borrow more money at a lower interest rate and even have a positive effect on insurance rates and your ability to rent property, the same holds true for your business credit. Even if a business is set up as an LLC or a corporation, the business owners are often required to personally guarantee loans to the company. Once the company itself establishes a good credit history, personal guarantees may no longer be required.

8. Better terms. Business credit cards often have better terms than those of a personal card, including lower interest rates, higher credit limits, longer periods before interest accrues, and discounts for early payment.

9. Perks. A business credit card may offer more perks than your personal cards, such as more points for cash-back or frequent-flyer programs, waived airline baggage fees, airline lounge memberships, and hotel and car rental discounts. If you don't do a lot of business travel, a general cash-back rewards card may be best.

10. Cards for employees. Once you've acquired your business credit card account, you may be able to obtain additional cards for your employees. Doing so makes it easier for the employee to conduct company business while enabling you to track the employee's spending. You may also be able to set a spending limit for each employee, thereby preventing an employee from going over their budget.

Applying for a business credit card generally involves the same process as for a personal credit card. If you are operating your business as a sole proprietorship, you may need to provide your social security number, unless you have secured an employer identification number (EIN) for a partnership, LLC, or corporation.

In some situations, it may be necessary to start with a secured credit card, which comes with a small credit limit and is guaranteed by a bank deposit or some other form of collateral. Once your company has established a good payment record, it should be possible to switch to an unsecured card and have the credit limit increased.

It's important to shop around to determine which cards are best suited to your business. Also, obtaining a card from a large national or regional bank may enable your company to take advantage of other financial services such a large institution may offer.

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Officially, there is no limit to the number of business credit cards you can apply for at one time. However, each application will lead to a hard inquiry on your credit report and may lead to a ding in your credit score. Having many inquiries in a short amount of time could signal to card issuers that your finances are desperate or risky and therefore backfire against your approval. We recommend applying for no more than one or two cards every few months.

The number of business cards you should have will depend on the capital you need as well as what else you are using the card for—whether that’s separating expenses for tracking and reporting purposes or taking advantage of card benefits and rewards that assist your business. Some companies may only need a single business credit card while others may need (or want) multiple cards.

However, think carefully and be wise when making a final decision as you want this to benefit you and not become a problem in the future. As long as you spend wisely and take care of your credit, as you should with any credit card, you should be able to benefit from the various perks and rewards that a business credit card has to offer.

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