Ever wondered – how do business credit cards work? We all know how credit cards can give you rewards, perks, and benefits but before using a business credit card, you should know all terms and conditions to get the most out of it. But do you know what offers and benefits are available on your business credit card? Well, we can tell you everything there is to know related to business credit cards.
How do Business Credit Cards work? (Jump To Section)
Almost every American credit card consumer uses credit cards to make his/her finances and purchases smooth. If you are one of them, you can also start using a business credit card on your own. But the very first question is how do business credit cards work? Is the card worth enough, or is it helpful for you or not!? Well, all of these will be answered, and you will get all the relevant details regarding business credit cards in this article.
You may consider applying for a business credit card as an entrepreneur. A perfect credit card for your business ideas will help you with expenditure and money management. Your company can be small or big. It can be old or new. But whatever it is, a business credit card will aim to better your business expenses.
When you know how business credit cards work, you will understand how a business credit card differs from a personal credit card. So without wasting any time, let’s get started.
What is a Business Credit Card?
A business credit card is solely intended for use by a business entity. It is not used for any personal reasons. Whatever the business size, a business credit card can be issued to the business owner to maintain and manage a lot of business expenses. A business credit card can build a company’s credit profile for future borrowing.
Easily you can understand that a business credit card is not meant to be used for purchasing breakfast or fancy dinners in an expensive restaurant unless you need to meet your clients or investors for an exquisite food experience. Any credit card solely made for business work comes with various expense monitoring and other tools related to business.
Usually, those tools help to monitor and manage all kinds of business spending. Usually, business entities need to spend more than any personal reasons. Only, for this reason, business credit cards usually offer more value in perks and rewards.
As a business owner, you can purchase your office furniture, business trips, etc. If your business company is quite new, you need to be more careful while using credit cards for business.
Who Qualifies for Business Credit Cards?
Usually, any business owner is qualified for business credit cards. If, as a business owner, you have strong and excellent personal credit, you will always want to keep your personal and business expenses separate. Obtaining a new business credit card is fairly easier if you have already used it before. Sometimes, you may not need a storefront or lots of employees.
But what is more important is demonstrating income. Only then will you get a better business credit card with lots of perks and benefits.
Here is a list of qualified business owners who can easily go for applying for a business credit card. If you are one of these, you are always welcome to avail a business credit card.
- Sole proprietors
- Small business owners
- Large business owners
- Limited liability companies
Now, let’s try to understand the most basic differences between a business credit card and a personal credit card.
Business Credit Cards vs Personal Credit Cards
Before learning how business credit cards work, you should know a few basic differences between personal and business credit cards. Usually, both business credit cards and personal credit cards function the same way. Sometimes you may also get various business-related offers, travel rewards, hotel booking facilities, etc.
Both these cards can earn huge rewards and perks, but there are a few differences that stand out. Those differences are as follows:
- Which Transactions Get Reported To Credit Bureaus
- Limits on The Credit Cards
- Spend Categories Eligible For Bonuses
- Offers on Interest-Free Credit
- Benefits for Accounting and Bookkeeping
- Consumer Protection Features
Let’s talk about these in brief.
1. Which Transactions Get Reported To Credit Bureaus
When you use a personal credit card, your credit card activity will usually be reported monthly to the three major consumer credit bureaus. These three major bureaus are Experian, Equifax, and TransUnion. When you use a business credit card, this thing may not always come.
Many credit card issuers report business activity to consumer and commercial credit bureaus. This can affect both your personal and business credit scores. If you are thinking of new business ideas, you should use a business credit card that reports to both consumer and commercial bureaus.
2. Limits on The Credit Cards
Many business credit cards usually have a greater spending limit than any other personal credit card. You can use a credit card with a higher credit limit to have steep operating costs. If you spend a lot on inventory each month, you should use a credit card for business with a proper credit limit.
3. Spend Categories Eligible For Bonuses
A few rewards can be the same in personal and business credit cards. But you can find some more rewards on a business credit card. It can be your phone bills, online advertising, or office supplies. The more you will spend on your business credit card, the more rewards, and bonuses you can get.
4. Offers on Interest-Free Credit
When you apply for a personal credit card, your 0% intro APR periods can be quite long, like 12 months, 15 months, or sometimes even 18 months. But applying for a business credit card can stay up to nine or 12 months. Also, this offer can only be validated on purchases, not balance transfers.
5. Benefits for Accounting and Bookkeeping
While paying taxes, credit card statements are very handy. At that time, a business credit card will help you a lot with categorizing your expenses. On many business credit cards, you can get an itemized spending report. Usually, personal credit cards do not offer this kind of categorization.
Apart from this, business credit cards make tracking expenses easier in lots of ways. You can also get facilities like an employee’s card. This can help you to set limits on your employee’s spending. Any personal credit card does not give you these many options.
6. Consumer Protection Features
Personal credit cards are covered under the Credit Card Act (2009).
The Credit Card Accountability Responsibility and Disclosure Act of 2009 is a consumer protection law that was enacted to protect consumers from unfair practices by credit card issuers by requiring more transparency in credit card terms and conditions and adding limits to charges and interest rates associated with credit card use.– Cornell Law School
Business Credit Cards may not be protected under the Credit Card Act. Even though some credit card issuers extend the benefit to small businesses, it is more of an exception (out of courtesy) rather than a rule.
Can you use a Business Credit Card for personal expenses?
You already agreed to use the card only for business transactions as a business credit card holder. Also, a major portion of business credit card issuers stipulates this in the card’s terms and conditions. A credit card issuer cannot understand that certain expenses were made for personal rather than business reasons.
You can enjoy a few consumer protections while using a business credit card. It will also give you a few benefits associated with the business credit card.
How do Business Credit Cards work?
You have already understood that business credit cards work quite the same way as personal credit cards. You just charge purchases on your business credit card relating to your business only. Then, at the end of each billing cycle (usually a month), you get a credit card statement telling you how much balance you owe, and by which date.
The interest rate may vary depending on your payment. It is highly recommended that you pay the balance in full, every month. If you do so, you do not have to pay any additional fees or interest on those purchases. If you decide to carry a balance, interest will start accruing on the outstanding balance amount.
Keep in mind that a business credit card will have variable interest rates. The more creditworthy your business is (timely payments, predictable cash flow, good relationship with bank), the more likely you will get a better interest rate.
Apart from this, many business cards are charge cards that demand full payment every month. The main drawback of these kinds of cards is that they generally have no set credit limit. This is not a good business credit card for those who are not able to pay off the balance on time, every month.
In this case, you may look for more time to pay bills as a business owner. Even if you have an unpredictable source of income, the absence of a spending limit can make charging your business credit cards ideal for established businesses with big monthly expenses factored into the budget.
While applying for a business credit card, you will stumble upon various types. Some may have higher or lower annual percentage rates (APRs), though annual percentage rates depend on the credit worthiness of the whole business entity. A business credit card may also have different kinds of reward structures. Some may spend a lot on marketing, advertising, and other things.
On the other hand, some business entities may need to spend a lot on travel or office equipment. So when you choose a business credit card, you need to check all the features of the credit card to match your business needs. Undoubtedly, getting a strong understanding of your business’ spending needs will be a good idea before deciding which can be the best business credit card to apply for.
We can give you a few examples to make you understand more easily. Suppose you are opening your new business and it needs a lot of spending. You can go for a credit card that offers cash back on every spending you will make on your card. A good cash back option can help pay the monthly bill with statement credits.
Apart from this, if you are a more established business owner, you may need to go on many business trips. In this case, you should use a business credit card with an ocean of travel rewards. It may also offer discounts on airlines and hotels at the time of booking with the specific choice of exotic hotels or airlines. Some credit cards also offer you gas station cashback offers.
5 Reasons Why You Should Get a Business Credit Card
Well, now you are quite acquainted with how business credit cards work. You should know a few things about why you should consider getting a business credit card. Here are five things that are lucrative on a business credit card.
1. Easier Bookkeeping Saves Tax Prep Time
Separating business expenses from your personal spending can save you a noticeable amount of bookkeeping time. It is also helpful for particular periodic accounting, applying for business loans, or even tax filing scenarios.
2. Travel Rewards With Hotels And Airlines
You may notice that many business cards are associated with offers like exclusive resorts, airport lounges, free checked baggage, or discounts on hotel reservations. Before going to choose one, think twice. If you need to cover many trips, you may use a perfect business travel credit card to save more and earn more rewards on everything you purchase.
3. Cashback Offers And Interest-Free Credit
0% introductory annual percentage rates or higher cashback can come under this category. It may save purchases like office supplies, wireless phone services, etc.
4. Sign-up Bonus and Other Credit Card Rewards
Many business credit cards offer a huge introductory bonus or welcome offer. It can be like a lot of miles that can be used in a hotel or flight booking. It can also be used for renting a car if needed, etc. You can also get shopping rewards.
5. Easily Manage Employee Spending
A business credit card makes an easy way for all employees to make purchases for the business. When your business is a full-fledged business entity, you may choose to use employee credit cards. This fact can help accelerate growth while giving you back healthy cashback offers and rewards points. Apart from this, a credit card like this allows you to better monitor employees’ business spending.
The Advantages and Disadvantages of a Business Credit Card
As everything has its pros and cons, a business credit card is no exception. Here you can understand all the advantages and disadvantages of a business credit card.
Advantages of business credit card
- A business credit card gives you many rewards and benefits like travel, hotel bookings, resort booking, lounges, flight booking, utility bills, shipping, marketing, etc.
- A good business owner with a perfect business credit history may get access to various facilities like free subscriptions to business software, primary auto rental insurance, and other business resources.
- A business credit card will not impact your credit score.
- Your business credit card activity will not be reported to consumer credit bureaus, but it will be reported to commercial credit bureaus. That means when you will go for a business credit card, it will make your business credit history strong.
- You will be offered a higher credit limit with a business credit card.
- Issuers can offer you extended periods of interest-free financing when you will apply for a business credit card.
- Another advantage for business purposes is an option like a separate employee credit card.
- Your business credit card could also cater to you with a better sign-up bonus that can be used for various business purposes.
Disadvantages of a business credit card
The only disadvantage of a business credit card is a business card will not avail of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). This CARD Act provides many facilities like sudden increasing rate of interest, etc. So when choosing a business credit card, always look if the pros of any credit card outweigh this disadvantage.
The bottom line
All business credit cards are designed to make your business expenses relatively easy for you. Business credit cards typically give bigger credit lines. Apart from this, these credit cards will facilitate your accounting and tax filing. You can also smooth out your business operations with the help of your business credit card.
But make sure you are not doubling up on perks between a business card and a personal card. Use your business credit card wisely to get maximum rewards from the card. We hope this article provided you with all the necessary information. We also hope, now, you have a better understanding of how business credit cards work typically. If you like this article, consider reading our other articles. They are equally informative if not more. Keep reading!
Frequently Asked Questions (FAQs)
- What does a business credit card do?
A business credit card helps to create a line of credit so that a business owner can make purchases or withdraw any cash.
- What are the pros and cons of a business credit card?
Here are some of the pros and cons of a business credit card.
- You will get more terms and conditions that are helpful in business transactions.
- You will get lots of benefits on this business credit card.
- You can make your personal credit score.
- With a business credit card, you will not get any consumer protection.
- Sometimes, business credit cards are costly.
- Can I make use of business credit cards for your personal uses?
There is no such rule that you can not use your business credit card for personal expenses. But, if you use it for your personal expenses, you may complicate the process of identifying and reporting business expenses. Some banks also frown upon users who use business credit cards for personal use.
- Can I use my business credit cards at a gas station?
Yes, surely – there are also a few business credit cards that offer you gas station cashback or other rewards. Also, it is easy to keep tracking your gas expenses (business related) on your business credit card.
- Give a few examples of business credit cards in 2022.
Here are a few business credit cards for you in 2022:
- Ink Business Preferred® Credit Card: Best Overall Travel Rewards
- Ink Business Unlimited® Credit Card: Best Simplified Cash Back
- American Express Blue Business Cash™ Card: Best Straightforward 2% Cash Back for Moderate Annual Spend
- American Express® Business Gold Card: Best Flexible Large Bonus Categories
- The Business Platinum Card® from American Express: Best for road warriors and business travelers that spend a lot of time up in the air
- Brex 30 Card: Best for business credit without a personal guarantee
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