Should You Get a Small Business Credit Card?

If you are starting your own small business or operating one and want to separate business purchases from your personal expenses, you may want to apply for a business credit card.

Business credit cards offer better benefits than personal cards, such as discounts, airline miles or a bigger cash-back percentage, experts say. Some give business advice to clients.

You don’t have to be a big company to apply. a lot of Startups, Sole Proprietors and Small LLCs Use business credit cards. Regardless of your small business structure, it’s important to consider getting a separate business credit card.

Here’s some information on how to get started.

What is a business credit card?

A business credit card is similar to your personal credit card, but comes with additional options tailored to any size business, says Danielle Harrison. Certified Financial Planner And the founder of Harrison Financial Planning in Columbia, Missouri, there are many reasons you might want one for your small business.

“You can have authorized users and typically you can set different parameters for your employees,” Harrison explained. “For example, say your employees can only spend up to $500 in a month. This gives you more control than a personal credit card would.”

What is the purpose of a business credit card?

A business credit card gives you the opportunity to track expenses, pay for daily company needs, and accumulate many of the benefits of a personal card. It can also help separate your business from personal finance.

Here are some other reasons to apply for a small business credit card

• You want to keep your business and personal finances separate
• They often travel for business
• You are interested in getting better benefits
• You want to give cards to employees
• You want to keep track of most of your day-to-day business expenses

In some cases, you can use a regular credit card for small business. For example, if you’re a sole proprietor or freelancer who doesn’t want to grow, a business card might not make sense.

How to qualify for a small business credit card?

Most small businesses can qualify for a small business credit card. That includes sole proprietorships, LLCs, partnerships, and various types of corporations.

Although you have Side-in or passive income You may want to apply for a business credit card at your regular job.

Business credit card issuers may scrutinize your personal income and assets or the wealth of a family or partner, especially if you’re just starting out, Harrison notes.

How does a business credit card work?

Business credit cards work just like personal credit cards. You can use the card for expenses, supplies, contractors and other needs.

Experts recommend paying off the card every month if possible. This is because interest rates are often in the double digits – much higher than small business loans.

“The first thing to think about is how much balance to carry if you can’t pay it off right away,” said Blaine Tiderman, founder of Progress Wheels Management near Denver. “If you want to try to grow your business as quickly as possible, you can’t just throw debt at the wall and hope you make good decisions.”

If you need long-term credit, consider a small business loan that offers low interest over several years, suggests Tiderman.

Do you need an EIN for a business credit card?

In most cases, you’ll want to get an Employer Identification Number, or EIN. That keeps your business separate from your Social Security number and personal finances for tax and other purposes.

Advantages and disadvantages

Here are some pros and cons to consider when thinking about business credit cards

advantage

• Business and personal finance are different with different IRS accounts.
• You can give cards to employees
• A business credit card gives you an easy way to track expenses
• Generally, things like cash back and travel rewards are better than personal cards.

Cons

• If you have financing needs, credit card interest rates are much higher than other types of debt financing.
• If you’re starting a small business, you may have to risk your personal savings and assets to sign up for a business credit card.
• It’s easy to quickly accumulate debt on a credit card.

How many credit cards are too many credit cards?

It depends on the income your business generates.

“It’s about your income, it’s about your sales as a business, it’s about what you can afford. It’s about being careful and being responsible,” Tiderman said.

“As a business owner, if you have three or four different credit cards and you’re adding them all up? Maybe it’s not a good decision. If you have three or four credit cards and you’re paying them all off at the end of each one, you’re doing well a month before interest increases,” Tiderman added. .

Do business credit cards check personal credit?

Typically, yes, especially if your business is not yet well established.

“Business credit cards often depend on the owner’s credit history,” Harrison said. “People think, ‘Oh, I can get a business credit card, and they’re not going to look at all my personal information,’ but they are.”

This is because business card issuers look to your creditor to pay or settle debts. Additionally, owners are responsible for the employees who are authorized for the business credit card, Harrison noted.