Is getting a business credit card a good idea?

Business, commercial, or corporate credit cards are an easy go-to funding solution for SMBs, start-ups, and even large corporations. As proof of this, the North American corporate card market was valued at $14.1 billion in 2020. That figure continues to grow as more entrepreneurs embrace this mode of financing.

This article takes a deep dive into business credit cards, highlighting how they work, their merits and limitations, and how best to use them. With these insights, you can quickly decide whether a commercial credit card would be a worthy addition to your enterprise’s financial support structure.

Business credit cards vs. personal credit cards

A business credit card is essentially a form of a revolving line of credit. The cardholder can charge business-related purchases and other expenses to the card and pay back the withdrawn amount, plus interest, at a later date or through regular installments. Every card has a borrowing limit that replenishes after repayment, allowing for unlimited funding cycles.

So, in many ways, a commercial credit card is just like a personal credit card. Many entrepreneurs even use personal and business credit cards interchangeably. But mixing personal and business financing can be risky. Plus, a commercial credit card has several business-oriented perks you won’t find on a personal card. Said benefits include:

  • Higher spending limits
  • Highly customizable spending controls
  • Seamless integration with standard business payment systems
  • Detailed and insightful activity reports
  • Lucrative business-based rewards, discounts, and bonuses (airline miles, hotel points, bulk spending discounts, payment waivers, cash back rebates, zero-interest cards, etc.)
  • Enhanced security
  • Payment reporting to credit bureaus
  • Support for multiple cards and users
  • Business-friendly spending and repayment terms

Why get a business credit card?

Any business can get a commercial credit card, whether it’s a sole proprietorship, limited liability company, partnership, or corporation. Credit cards are particularly handy in small and budding businesses. Besides the attractive business credit card rewards we’ve mentioned above, here are five more reasons why you’d want one:

1. Access easy, quick financing

Many SMBs and start-ups struggle to secure conventional business financing such as bank loans and lines of credit. If you’re having trouble qualifying for favorable funding, a business credit card might just be the ticket you need. Credit cards are relatively more accessible, even to businesses with poor credit scores, low cash flow, and no collateral.

It doesn't take much to get approved for a business card. Although the qualifying criteria vary between lenders and card types, these are your basic approval requirements:

  • General business information (legal name, Federal Tax ID (EIN), contact details, type, history, size, etc.)
  • Your personal details (name, contacts, credit score, and SSN)
  • Annual turnover
  • Estimated monthly spend
  • Personal guarantee

Additionally, the whole application process is pretty swift. Most approvals happen instantly, while others take a few days at most. And once approved, you only have to wait 3 to 14 working days to get your card in the mail.

2. Streamline cash flow

A business card supplements your revenue streams and irons out any kinks in the cash flow. The card can be used for any business expense, from paying bills and purchasing inventory to sorting out cash emergencies, provided the spending limit allows it.

As cash flow levels often fluctuate, a commercial credit card can fill the dips with ready cash, which you can pay back when the business is doing well. This is a neat trick for maintaining healthy cash flow.

3. Check employee spending

Do your employees regularly take business trips or make business-related purchases? If they do, issuing them a dedicated credit card would be a great way to keep tabs on their spending. The advanced reporting features on the card will show you exactly what your employees are buying and how much it’s costing. You can even set limits and other spending rules for individual cardholders based on their job description and responsibilities.

All this simplifies accounting and encourages responsible spending. Plus, it’s more professional than handing out cash or casually settling out-of-pocket purchases with employees.

4. Establish and build business credit

A business credit card can help you establish and grow strong business credit. This is one of the main reasons why many SMBs and start-ups go for credit cards. You don’t need business credit at all to get a card. And all payments made on the card are duly reported to the credit bureaus. So, this is an ideal starting point to build your enterprise’s credit history, provided you don’t delay or default payments.

Good business credit can unlock higher limits and better terms on your card and even open doors to more lucrative financing opportunities.

5. Separate business and personal finances

Combining personal and business finances in one account might seem sensible, especially if you are a sole proprietor. But as we mentioned earlier, that's a risk not worth taking. For one, tracking business expenses using such an account is a nightmare. Plus, tax filing becomes a painstaking job of combing through intertwined business and personal expenses — more so if you get audited by the IRS.

On the other hand, separating personal and business expenditures simplifies bookkeeping and financial planning. A business credit card enables you to do just that.

Unexpected Businesses Expenses

Every business should have a credit card with a zero balance. Use this credit card for the unplanned business expenses and pay it off as soon as possible.

What to consider when using business credit cards

Credit cards are a type of debt-based financing. As such, you must be careful when using them to get worthwhile borrowing value without exposing yourself or the business to unnecessary financial risks. Here’s what you need to watch out for when using a business credit card:

1. The type of card

There are many different types of credit cards, each designed for a specific purpose or business model. The card type also determines the spending and repayment terms, credit limit, and perks.

2. Changing due dates and terms

Although the Card Act of 2009 discourages lenders from altering terms, payment schedules, and rates on existing credit card debt, issuers can still legally do this under certain circumstances. And unfortunately, most of these regulations only apply to personal cards.

3. Rates, fees, and penalties

Calculating the cost of using a business credit card can be difficult, given the many variables that come into play. Before taking a credit card, ensure you clearly understand the associated rates and fees. According to one study, the average rate on business cards ranges from 15.97% to 23.27%. You’ll also want to look at additional charges such as annual, processing, and transaction fees (if any). And don’t forget penalties for late payments.

4. Liability for other users

You can add employees to your credit account and issue them their own cards. It's no different from adding dependents to your personal credit card. Just remember that by default, you’ll be liable for the debt on each card.

5. Perpetual debt-cycles

Resist the temptation of taking too many credit cards you don't need. Doing so often encourages credit misuse and bad borrowing habits that can quickly plunge your business into perpetual debt.

How to get a business credit card

Getting a business credit card would indeed be a good idea, just as long as you get the right one and use it wisely. And speaking of getting a credit card, the application process and requirements depend upon the issuer. But in most cases, applying for a card is pretty straightforward. It takes only five steps:

  1. Research your options and find the card that fits your needs and business.
  2. Fill out and submit the application form along with any required documents.
  3. Wait for an approval response.
  4. Sign the card’s agreement once approved.
  5. Wait for your card in the mail.

Researching the available options is the first and most important stage of the application process. You want a card that brings value to the business; shopping around is the best way to find it. But rather than doing that manually, which would be tedious and time-consuming, why not use Lendzero?

Lendzero lists all the financing products available to your business in just a few clicks. Moreover, all the deals are pre-negotiated. So, no haggling with the lenders. All you have to do is sign up, and we'll take it from there.

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