If you are an average American consumer, you have probably used credit cards to simplify your financial journey. In the same way, if you own your firm, you can use business credit cards to streamline operations.
What is a business credit card?
A business credit card is a particular type of card made for business owners that has unique features made for companies. Usually, business cards have more considerable credit limits, more rewarding opportunities, and capabilities to assist you in monitoring spending and staff cards.
Even if your industry has seasonal trends, such as snow supplies in high demand during the winter, you will still need to pay your fixed business expenses, such as rent and utilities. You could use your business credit card to balance off such cash flow swings.
Your business credit card can offer rapid finance if your company encounters an emergency.
How a business card works
Credit cards for businesses operate similarly to personal cards. You make purchases using your card, and after each billing cycle, you get a statement that includes the total amount you owe and the minimum payment required.
You won’t be assessed interest on such purchases if you pay your account in full monthly. However, if you decide to carry a balance, interest will start to build up on your balance. Business credit cards have varying interest rates like personal credit cards. The more creditworthy your company is, the more likely you will receive a favorable rate.
However, many business cards are charge cards that call for monthly payments. Their main benefit is that charge cards typically have no defined credit limit. The lack of a spending cap can make charge cards suitable for established firms with significant monthly expenses built into the budget, even though they are not the best option for newer businesses with high starting costs that owners hope to spread out over time or for those with unpredictable income.
The benefits of a business credit card
A business credit cards gives you the same access to a line of credit as a personal credit card. You need money to fund your activities regularly, even if a business’s cash flow can be irregular. The line of credit on a company credit card will be helpful in this situation.
Higher credit limits: These cards offer a more extensive credit line than the average consumer credit card because they are designed for corporate requirements.
Track business spending: You can use business cards to segregate your personal and business expenses, making it easier to keep track of your accounts and file your taxes.
Extended interest-free periods: The standard 21-day grace period for a personal credit card can be extended by issuers to lengthier periods for business owners. If your business card has such a feature, it will provide you more time to pay off your balance and the freedom to make investments for your company.
Extra benefits: The best business credit cards provide more and higher rewards. For instance, if you frequently travel for business, you may accrue cash back and points for your own travel and your staff’s travel.
Business-related perks: As a business owner, you can also benefit from savings on services and access to accounting software.
Generous sign-up bonus: your company credit card may qualify for a higher one. Even though some business cards have no yearly fees, those with significant welcome incentives frequently have higher annual costs.
Increased spending limits: Numerous premium business cards also provide higher spending limits, translating into more significant monthly cash-back bonuses. You can use all of this extra money to reinvest in your company.
Employee cards: Another benefit is adding employees to your business credit card and authorizing them to perform specific tasks, such as making some purchases for the business. You can review all their activity and also accrue rewards on employee purchases. And you could set up individual credit limits geared to their actions.
The main disadvantage of a business credit card
One significant drawback to remember if you apply for a corporate credit card is that these cards are exempt from the safeguards provided by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). The CARD Act offers consumers several protections, including a ban on surprise interest rate increases by card issuers. Therefore, you must evaluate if the advantages of a business card outweigh this drawback.
How a business card impacts your credit
The provider of these cards will review your credit history and credit score to determine whether you qualify for them. They can assess your creditworthiness because they know you are accountable for making payments on your business card. Therefore, you should provide a personal guarantee to guarantee that you will pay the debt on the card.
Learn more about The 4 Business Credit Tiers: How They Impact Your Business.
Applying for a business credit card
The business credit card issuer will inquire about you and your company when you apply for one. Therefore, be ready with information regarding the company’s tax ID number, business name, and organizational structure. Additionally, keep close at hand the company’s financial information (such as sales and profit numbers), the company’s founding date and location, and your personal details, such as proof of identification, your address, and your Social Security number.
Business credit cards are typically preferable to personal credit cards for your company because they are explicitly designed to meet the demands of businesses. They will help you with your accounting and tax filing and often have more extensive credit lines. Finding a credit card appropriate for your work will help your operations run more smoothly and provide incentives appropriate to your company’s requirements. One significant drawback is that because the CARD Act was created with customers in mind and pertained to consumer credit cards, they are not covered by its protection