What is a business credit card and how does it work?

How a business card works

Business credit cards work the same way as personal cards. You charge purchases on your card and then, after the end of each billing cycle, you receive a statement showing the total balance due and the minimum amount due.

If you pay your bill in full each month, you will not be charged any interest on those purchases. If you choose to carry a balance, you will begin to accrue interest on your balance. Like personal credit cards, commercial cards come with different interest rates: the more creditworthy your business is, the more likely you are to get a favorable one.

That said, many business cards actually charge cards, requiring payment in full each month. The main advantage of credit cards is that they usually don’t have a set credit limit. While not the best option for newer businesses with high upfront costs that owners are looking to spread out over time, or for those with unpredictable income, the absence of a spending limit can make credit cards ideal for established businesses with large monthly expenses built into the budget. budget.

The benefits of a business credit card

Like a personal credit card, a business credit card allows you to use a line of credit. Business cash flow can be erratic, but you need money to fund your operations on a regular basis. That’s where a business credit card line of credit will come in handy.

• Higher credit limits. These cards are tailored to business needs and usually offer a larger credit line than the usual consumer credit card.
• Tracking business expenses. Business cards allow you to separate your business expenses from your personal expenses, which helps you keep track of your accounts and also helps you prepare your tax returns.
• Extended interest-free periods. Issuers may offer business owners extended interest-free financing periods longer than the typical 21-day period for a personal credit card. If your business card offers such a benefit, it will give you a longer grace period to pay off your balance and flexibility to make business investments.
• Additional rewards. The best cards for business expenses offer bigger and better rewards. If you travel regularly for your business, for example, you could earn reimbursements and rewards on your business travel, as well as on employee travel on your card account.
• Business-related benefits. You can also get business-specific benefits, such as access to accounting software and discounts on services for your business.
• Generous sign-up bonus. Your business credit card may also get a better sign-up bonus. While there are business cards with no annual fees, those with large sign-up bonuses often have higher annual fees.
• Higher spending caps. Many premium business cards also offer higher spending limits, which means bigger monthly cash-back bonuses. All of this will be additional money for you to put back into your business.
• Employee cards. Another benefit is that you can add employees to your business credit card and give them the authorization to perform certain 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 individual credit limits geared to their activities.

The main disadvantage of a business credit card is.

If you decide to apply for a business credit card, one of the main disadvantages to keep in mind is that these cards do not enjoy the protections offered by the Credit Card Accountability and Liability Disclosure and Responsibility Act of 2009 (CARD Act). The CARD Act provides consumers with several protections, such as preventing card issuers from raising interest rates without notice. You will need to decide if the benefits of a business card outweigh this disadvantage.

How a business card affects your credit

To qualify you for these cards, your issuer will review your credit history and credit score. Since you are responsible for making payments on your business card, this will allow them to assess how creditworthy you are. You may have to make a personal guarantee to be responsible for the debt on the card.

In that case, you will be personally liable for the debt in the event that the business has trouble paying the credit card. Keeping in mind that the business could also go bankrupt, issuers should know that someone will be responsible if that happens.

Issuers can report the debt to business credit reporting services, but the debt generally won’t show up on your personal credit report unless there is a problem.

If you use your business credit card responsibly, you will be rewarded by building your business credit and will be able to access larger lines of credit and other business loans to grow your business if that is your goal.

And in the event that your personal credit is tarnished for some reason, you can still leverage credit to fund your business needs (if your business credit is still current).