Of the many different types of credit cards that exist, business credit cards can often seem the most difficult to fully understand. However, they operate in a very similar way to personal credit cards, with a few key differences. Learning when to get a personal versus business credit card can be challenging, especially if you are an owner of a small business or a sole proprietorship.
But business credit cards can have a plethora of advantages over personal credit cards in a number of business-related circumstances. By learning the purpose of getting business credit over another type, you can feel confident in knowing that you are receiving the right amount of credit coverage to fit your business’ needs.
What is a business credit card?
Broadly, a business credit card can be used by a business in order to separate work costs from their employees’ personal funds. Business credit cards can build up the organization’s ability to make bigger purchases than it has in capital alone without taking on a business loan. These purposes can do very different things for a business, depending on whether or not they are prioritized. Without using credit at all, it can be very difficult for many businesses to manage all of the varied expenses that they need to deal with every day.
Business credit cards are slightly different than corporate credit cards. While the former is given to individual employees in a company, the latter is given only to CEOs of large companies who have a relationship with a specific bank. But business credit cards are still incredibly useful tools for companies to utilize, as they are an easy and efficient way for individual employees of a company to make purchases for the sole purpose of company supply and growth.
Perhaps one of the more overlooked aspects of using a business credit card is that it can help a business to improve its credit history and rating. While a credit history may not seem like the flashiest aspect of a growing company, it is extremely vital to almost any company’s success. By steadily paying off small credit expenses, companies can prove to future lenders and investors that they are responsible and have reliable business practices. Conversely, if a business has a poor credit history, then it can be quite difficult to prove to these investors that it is worth taking a risk on.
How to Differentiate Business and Personal Credit Cards
As previously mentioned, there are quite a few differences between business and personal credit cards. By understanding these differences, you can determine which type of card will fit best with your current setup. Some of the major differences are as follows:
- While business credit cards build business credit, personal credit cards build personal credit. Business credit still keeps business owners liable for any accrued credit debt, but it is viewed differently by future creditors and investors than personal credit.
- Some business credit cards have special systems to help growing businesses. As a business owner, you will need to take extra precautions to separate your business expenses from your personal expenses as efficiently as possible. Luckily, some business credit cards have built-in systems via their online websites or apps to help you keep these records in one place, catalog your receipts and utilize more features that personal cards might not offer.
- The benefits that you can receive are different for the two card types. Whereas personal credit cards can have individualized benefits such as cash back, airplane miles and store discounts, business credit cards often have more company-centric perks. These can include providing free credit cards to many different employees of your company, receiving advertising or shipping discounts or getting special deals on office Wi-Fi, phone service or bulk office supplies.
There are even more differences between the two card types, depending on what you need the credit for. The most important factor to remember is that if you are running a business or simply providing a service, it is never a bad idea to use a business credit card over a personal one (even if just to more easily separate your business and personal expenses).
How to Get a Business Credit Card
Once you have established that a business credit card is right for you, the next step is to look for the right card provider and the specific card that can meet your needs. While there is no one “perfect” business credit card to fit all individuals and businesses, there are a few desirable card features to keep an eye out for. These can include some of the aforementioned business benefits, the lack of an annual fee, extended zero percent APR introductory periods, extended credit limits and continuously low-interest rates. While you are unlikely to find a card with all of these benefits, some of them can be better than others depending on your business situation and spending habits.
When you have found the card that has your ideal coverage options and benefits, you will need to provide that card company a few things to go along with your application, such as the following:
- Your business’ Employer Identification Number (EIN) or your own Social Security Number.
- Your own personal information, including your contact information and household income.
- The name of your business, your role in the business, the type of business you provide, your business’ contact information, your number of employees, revenue information and average business expenses.
- A signed guarantee that acknowledges your responsibility for paying back any debt, even if your company goes out of business.
Depending on the credit card company that you choose, it may also ask for some additional information that has not been mentioned thus far. Once you have submitted the required information in your application, a business credit card is well within your reach. Oftentimes, an accepted application letter along with your physical business credit card and other information will be sent to you in the mail.
Finally, once you have successfully received your business credit card in the mail, you may begin using it to help fund your business expenses! It is extremely critical to be aware of how your business credit cards are being used because these types of cards can tend to have higher than average monthly interest rates. The tip for avoiding debt is to limit monthly business credit card bills and pay off your balance as soon as possible. By following all of these tips, you can use a business credit card to confidently and efficiently grow your business.