What Is a Business Credit Card?

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ByGrace Pilling
Edited byRae Osborn
ByGrace Pilling
Edited byRae Osborn

Updated: March 21, 2024

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Business credit cards have become a go-to choice for many companies, from start-ups to established firms. They're not just about making payments; they offer a way to manage finances efficiently and come with features tailored to business needs.

KEY TAKEAWAYS
  • Business credit cards simplify expense tracking and provide rewards tailored to business needs.
  • Business cards offer higher credit limits and detailed reports. However, responsible management is crucial to avoid accumulating debt.
  • Choosing a business credit card should be based on the company's specific financial habits and requirements.

What Is a Business Credit Card?

A business credit card is a financial tool designed specifically for business use. They're available to businesses of all sizes, from sole proprietorships to large corporations. Unlike personal credit cards, a company or business owner can separate business expenses from personal ones, simplifying accounting and tax processes. They're available to businesses of all sizes, from sole proprietorships to large corporations.

As a business owner, when you use this card, you receive a statement detailing your business-related purchases, making it easier to track expenses. Many of these cards also come with rewards or cash-back programs, such as travel rewards, cash back on office supplies, or discounts with specific vendors.

Beyond convenience and rewards, business credit cards can also act as a short-term funding solution. They provide a way to manage cash flow, especially when dealing with delayed invoice payments or seasonal fluctuations in revenue. By offering a credit limit that can be higher than personal cards, they give businesses the flexibility to make essential purchases even when funds are temporarily low.

It's essential to use business credit cards responsibly. Just like personal cards, they come with interest rates, fees, and potential penalties for late payments. Relying too heavily on them can lead to mounting debt, affecting the business's financial health. Responsible usage includes paying off the full balance each month to avoid interest and monitoring unauthorized transactions.

Features of a Business Credit Card

In this section, we'll cover four core features of business credit cards: higher credit limits, specialized rewards, itemized expense reports and the availability of employee cards. Each offers unique advantages and responsibilities for managing your business finances efficiently.

Higher Credit Limits

Business credit cards often come with higher credit limits compared to personal cards. This feature is tailored to accommodate the more extensive purchasing needs of businesses. A higher limit can be especially beneficial for companies with significant operational expenses or needing to invest in equipment and inventory.

It allows for greater financial flexibility, enabling businesses to make essential purchases without immediately depleting their cash reserves. However, with this increased limit comes the responsibility of prudent financial management. While it offers more room for spending, businesses must ensure they don't accrue unsustainable debt, which can affect their credit score and financial stability.

Business-Specific Rewards

One of the standout features of many business credit cards is their business-centric rewards programs. These cards often provide points or cash back for purchases that companies routinely make. For example, a card might offer discounts on office supplies, a common expense for businesses. This can translate into significant savings over time.

Travel benefits are another prime feature. If you or your employees frequently travel for business, these cards can offer perks such as free checked bags, priority boarding, airport lounge access, or travel insurance. Some might provide higher reward points for expenses related to business trips, like hotel stays or dining.

Partnerships between credit card providers and vendors might also offer exclusive discounts on products or services, further reducing operational costs. It's essential for businesses to choose a card with rewards that align with their spending patterns to maximize benefits. While these rewards can be lucrative, they should not encourage unnecessary spending but rather augment a company's existing financial strategy.

Itemized Expense Reports

A fundamental feature of business credit cards is the provision of itemized expense reports. These reports provide a detailed breakdown of all the transactions made on the card, often categorized by type of expense or vendor. For businesses, this is invaluable as it streamlines accounting processes and ensures transparency.

These reports can be accessed monthly, though some providers might offer quarterly or annual summaries. This frequency ensures businesses can regularly monitor and evaluate their spending patterns. The precision of these itemized statements means companies can quickly identify areas of high expenditure or spot irregularities, making them vital for budgeting and fraud prevention.

When tax season rolls around, these reports help verify deductible expenses, ensuring businesses are getting all the tax benefits. With everything neatly organized and categorized, businesses can save significant time and effort, eliminating the need to sift through receipts or manual records. It's a feature that promotes fiscal responsibility and efficiency in operations.

Potential for Employee Cards

A prominent feature of many business credit cards is the capability to issue additional cards for employees. These employee credit cards function as extensions of the primary business account, enabling staff to make authorized purchases or cover business-related expenses without reimbursements or cash advances.

One of the benefits is that you can set specific spending limits for each cardholder. This ensures that while employees have the flexibility to cover needed costs, there's a cap to prevent excessive or unauthorized spending. These limits can be adjusted based on the responsibility of the employee, ensuring customization to business needs.

Note that while these cards are issued in the employee's name to easily track expenses, they're tied to the business's credit card account. Thus, the responsibility for payment lies with the business. Any defaults or late payments can affect the company's credit rating, so monitoring and timely payments are crucial.

Having employee cards allows for a consolidated view of business-related expenses. With individual names attached to each transaction, tracking who made which purchase becomes easy, further simplifying accounting and expense approval processes. It provides transparency, control, and convenience, all while ensuring seamless business operations.

Benefits of Using a Business Credit Card

If you use your business credit card responsibly, you can benefit in several ways. Plus, most leading credit card issuers provide cards for business owners, so you will have several options to choose from.

1
Build business credit history

If you have no or poor business credit history, you can build credit by getting a business credit card. To do this, you need to make all your payments on time and maintain a low credit utilization ratio. The credit utilization ratio refers to the amount of credit you've used from your total available credit and should ideally be under 30%.

2
Short-term cash flow flexibility

Access to adequate liquid capital means your business can remain flexible when faced with unexpected hiccups. However, it’s important not to look at credit cards as a solution for meeting long-term cash-flow needs.

3
Monitor employee spending

There are usually no added annual fees for getting more employee cards. You can receive detailed statements for all employee cards, so monitoring their spending is straightforward. You might even be able to set individual spending limits.

4
Earn reward

Depending on the card you get, you might earn cash back, reward points or miles. With some cards, you can earn rewards faster when you spend on bonus categories such as travel, dining, gas and office supplies.

5
Simpler to file taxes

When you keep your individual and business expenses separate, filing your taxes is simpler. You won't have to spend time reviewing your personal credit card or bank account statements and identifying the specific transactions you made on behalf of your business.

6
Improved expense management

Detailed quarterly and year-end summaries help break down expenses into specific categories. This helps with tracking expenses and creating budgets. The top business credit cards also let you integrate account activity with software such as QuickBooks and Quicken.

Disadvantages of Getting a Business Credit Card

Even the best small business credit cards may have negative consequences if you don’t use them properly. It’s always recommended you choose your card based on your specific needs and situation to ensure you're capitalizing on your spending and getting the most out of a card’s benefits.

1
Effect on personal credit score

When you apply for a business credit card, the card issuer will examine your creditworthiness to make a decision. If they conduct a hard credit inquiry, that may cause your credit score to temporarily drop by a few points. But once approved, most issuers don't report business credit card activity to consumer credit bureaus — unless it’s negative.

2
Accumulating debt

It doesn’t make sense to get a business credit card if you don't act responsibly with your finances. While it's tempting to buy on credit, accumulating debt that you have trouble repaying can result in long-term financial problems.

3
Interest charges

If you don’t pay off your balances in full each month, you’ll need to pay interest charges, which can be unusually high in the case of credit cards.

4
Need to provide business details

Applying for a business credit card requires that you provide personal information, and you need to provide details about your business. This includes the name of the business, its address and phone number, the industry it belongs to, its legal structure, its EIN or your SSN, and its annual revenue.

5
Need good credit score

Finding a consumer credit card with poor or average credit is fairly easy, but this is not the case with business credit cards. Most issuers require that you have good or excellent credit to qualify. However, there are a few secured business credit cards out there that can help you to build or rebuild your business credit score.

Is A Business Credit Card Worth It?

Business credit cards can be a significant asset for many enterprises. They provide a clear separation between personal and business expenses, aid in detailed financial tracking and offer various rewards tailored for businesses.

They can be instrumental when cash flow is tight, acting as a short-term buffer. However, their value is most pronounced when used judiciously. If mismanaged, they can lead to debt and potential financial complications.

Whether a business credit card is worth it depends on the company's spending habits, financial discipline, and the specific benefits the card offers relative to the business's needs.

Next Steps

Business credit cards, when used responsibly, can offer unparalleled advantages to enterprises, streamlining expenses and offering lucrative rewards. Like all financial tools, their true efficacy depends on the user. For maximum benefits, businesses must adopt a balanced approach, ensuring that they leverage the advantages while being wary of potential pitfalls.

FAQs

Will a business credit card hurt my personal credit score?
What is the difference between personal and business credit cards?
What is the difference between business and corporate credit cards?
What credit score is needed for a business credit card?
Is business credit tied to personal credit?
Can I get multiple business credit cards?
Do I need a business to get a business credit card?
What happens if an employee misuses a company-issued business credit card?

About Grace Pilling


Grace Pilling headshot

Grace Pilling was the Senior Content Manager for Credit Cards at MoneyGeek. She previously led personal finance teams at Bankrate, CreditCards.com and MoneyUnder30.

Pilling has a bachelor's degree in English from Western Sydney University and a diploma in book editing, proofreading and publishing. She is focused on empowering readers to make informed financial choices that support their best lives, not a company’s bottom line.


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