Business credit card

Is business credit card helpful?

Yes is the answer thats comes out almost immediately. That is true at least for most businesses (especially small businesses). Before we delve deeper into how business credit cards are helpful, lets try and understand what a business credit card is.

Put simply, a business credit card is a credit card that is owned by a business and not an individual. To understand this better, you can simply draw an analogy between the business credit cards and business bank accounts, which are in the name of the business as well. Other than that, business credit cards work in pretty much the same fashion as the personal credit cards; with a few exceptions. These exceptions are in the form of flexibility in credit limit, low APRs and some other additional benefits that are available to business credit cards only.

Even from just that, business credit cards seem a good proposition. However, business credit cards would be attractive even without those benefits because the main benefit lies elsewhere. The big-big benefit from a business credit card is realised in terms of business expense accounting. For most small businesses, business expense accounting is a big overhead. With business credit cards, this is handled very easily you just have to ensure that you make all your business expenses on your business credit card and let the personal expenses be on the personal credit card i.e. segregation of business and personal expenses is all you need to do. So the bill for your business credit card will have all the business expenses on it and you wouldnt need to collate all the various bills or sort out the items from your personal credit card bill. The key here is to make sure that you use your business credit card for all your business expenses (or as much as you can). Moreover, a lot of business credit card suppliers realise this need of small business and even organise the business credit card bills in a way that meets the accounting requirements of these businesses. So mostly, they will appropriately group the expenses on the business credit card bill so as to facilitate business expense accounting. In fact, some of the business credit card suppliers go to an extent of providing the bills in a format that can be downloaded and exported to an accounting system i.e. you dont need to enter the data manually in your accounting system. In case the format is not suitable for your accounting system, you can hire a software professional to write a small quick program to convert it into a suitable format.

Thus just one reason – facilitation of business expense accounting, is enough to support the case of small business credit cards.

SMALL BUSINESS CARDS AREN’T CORPORATE CARDS

There are two types of business credit cards: small-business cards and corporate cards. If you’re just starting out and your revenue is in the thousands, not the millions, you’ll likely want to go with a small business credit card, the kind featured on this list. Once you hit the big time, you might want to switch over to a corporate card. This would limit your personal financial liability for the account.

Business credit scores vs. personal credit scores

Businesses can have credit scores just like individuals. When you’re just getting a business off the ground, you’ll probably have to rely on your personal credit to open a small-business credit card or obtain a loan. But as a business builds its credit over time, it becomes easier to secure financing separate from the owner’s personal credit, as well as qualify for a business insurance policy.

What’s the difference between small-business credit cards and corporate cards?

The fundamental difference between a small-business credit card and a corporate credit card lies in who is responsible for debts on the card:

• With a small-business card, the business owner is personally responsible for the debt. That means he or she is liable for paying the debt even if the business goes under.

• With a corporate card, the business itself is the debtor. If the company goes out of business, the owners are not personally responsible for paying the debt.

This difference is reflected in the application process for business credit cards. When you apply for a small-business credit card, the issuer will check your personal credit history as well as your business’s credit (if your business even has a credit file of its own, which many don’t). You’ll also be expected to provide a personal guarantee that you’ll repay any debt. For a corporate card, the issuer examines only the business’s credit standing. The owners and operators don’t have to provide a personal guarantee.

Because of this, corporate cards are an option primarily for companies that have already established a credit history separate from the owners.

What’s the difference between small-business and personal credit cards?

The biggest difference between business and consumer credit cards, of course, is that you must operate a business to qualify for a business card. Beyond that:

• Consumer protections that apply to personal credit cards don’t necessarily apply to business cards. This includes things like limits on fees and rules about when the issuer can change the interest rate.

• Activity on small-business credit cards can be reported on the credit histories of both the business and the cardholder.

• Credit limits on business cards tend to be higher.

• Rewards structures are different, particularly the categories that earn bonus rewards. A business credit card is more likely to earn bonus rewards on shipping or at office-supply stores, for example, than at supermarkets or movie theaters.

Do I have to own an actual business to get a small-business card?

In general, you must operate a business to qualify a small-business credit card, but that business does not have to be incorporated or even have a formal structure, such as a partnership or LLC. If you’re a sole proprietor, freelancer or “gig” worker, you can apply for a small-business card, too. Be aware, though, that the application will likely ask specific questions about your business — the name (if it has one), what kind of business it is, how much revenue it brings in, and so on.

Does a business credit card affect my personal credit score?

The effect a business credit card has on your credit score depends on what type of card it is. A corporate card issued to you by your employer has no effect, because all account activity is reported on the employer’s credit file, not yours. Really, a corporate card is nothing but a tool you use for your job — you’re not on the hook for the debt. But if it’s a small-business card that you applied for yourself, the activity on the account could show up on your credit report and could affect your score, especially if the activity is negative, such as a missed payment or default.

Do I need an Employer Identification Number to get a small-business credit card?

The application for a small-business credit card will typically ask for the tax identification number of the business. If you have an EIN, you can use that. But you don’t need an EIN. If you’re a sole proprietor, you can use your Social Security number. Either way, the application will also ask for information about the individual who is personally guaranteeing the debt. You’ll use your Social Security number for that.