How To Know Whether Getting A Business Credit Card Is The Right Choice

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May 16 2024, Published 8:10 a.m. ET

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Managing finances is crucial for small businesses and startups, and credit cards can be a helpful tool for ensuring smooth operations. Many business owners use their personal credit card for business purposes. Surveys show that while 73% of business owners possess personal credit cards, only 20% utilize business credit cards.

However, those who do have business cards report significant advantages such as improved credit terms with suppliers and better opportunities for business financing. Unlike personal credit cards, business credit cards are tailored to meet the specific needs of companies.

The benefits and differences highlighted in this article will help you take the next step in applying for a business credit card to separate personal expenses from business transactions and utilize its many other advantages.

Benefits Of Business Credit Cards

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Choosing the right credit card can be a pivotal decision for your business. A business credit card offers distinct advantages like separating expenses and reaping tailor-made rewards, higher credit limits.

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Separation of Personal and Business Finances

Using a business credit card simplifies managing your business’ budget by keeping personal and business finances distinct. This separation is important for accurate bookkeeping and can protect your personal liability should your business encounter financial difficulties.

Higher Credit Limits and More Financing Options

Business credit cards frequently have higher credit limits than personal cards, providing more capital to invest in growth. This increased credit availability can be essential for managing cash flow during expansion phases or covering unexpected expenses without disrupting operations.

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Rewards, Benefits and Valuable Protections Tailored to Businesses

Your spending with business credit cards earns rewards more aligned with typical business costs, like office supplies or travel. Benefits can include cash back on everyday purchases, credits/rewards with key business merchants and points that can be redeemed for travel perks or statement credits.

Business credit cards also have benefits safeguarding your company’s purchases and travel plans like purchase protection, travel insurance and more. Leverage these protections to mitigate unexpected costs.

Facilitating Employee Spending and Accountability

Issue employee cards to let your team handle company expenses. This can help streamline employee expense tracking, and you can set individual spending limits and track purchases easily.

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Easier Tracking and Reporting for Tax Purposes

Business credit cards streamline expense tracking, making it easier to categorize and report business expenses during tax season. Simplified reporting translates to clear insights into your company’s revenue and outgoings.

Building Business Credit for Future Opportunities

Just like a credit score is vital for personal finance, a business credit score is key for a small business or startups’ future. Responsibly using a business credit card helps build a credit history, paving the way for potential business loans or financing opportunities.

When you use a personal credit card, the activity is reported to private consumer credit bureaus (Equifax, Experian and TransUnion). However, with a business credit card, your account behavior is more likely to be reported to public business credit bureaus, such as Dun & Bradstreet, Experian Business and Equifax Business. This reporting helps businesses build a credit profile crucial for obtaining loans, leasing equipment, or securing better supplier payment terms.

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Another difference between the two credit scores is that while personal credit scores range from 300 to 850, business credit scores usually operate on a scale from zero to 100.

Avoiding Personal Credit Damage

For the most part, dedicated business credit cards keep business debt off your personal credit bureaus’ reports. This protects your personal credit score from the impact of your business’s borrowing activities, which is especially important if your company faces bad credit issues.

However, be aware that some business credit issuers might also report to your activity to the consumer credit bureaus. You’ll want to know which credit bureaus the card’s issuer will report your credit behavior to before selecting a new credit card.

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Differentiating Business Credit Cards and Personal Ones

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Choosing the right credit card can make a big difference to your bottom line, whether you’re managing a small business/startup or handling personal expenses. Let’s look at how business credit cards compare to their personal counterparts in critical areas such as interest rates, rewards, fees and credit limits.

Examining Interest Rates and APR Differences

Business credit cards often have similar interest rates to personal credit cards. Some business credit cards have an annual fee, but the rewards and perks can offset this expense.

Key factors to consider include:

  • Interest Rates: Business credit cards typically have variable interest rates, which may differ from personal card rates based on your creditworthiness.
  • 0% APR Offers: Both card types could provide introductory 0% APR periods, which are beneficial for financing initial business costs or large personal purchases.
  • Rates and Fees: Understand all applicable fees, such as late payment fees, foreign transaction fees and balance transfer fees, as they can differ between business and personal cards.
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High fees can eat into your profits and high rates can be a burden if you carry a balance. Find cards with low or no annual fees and competitive interest rates. Balance transfer offers can be beneficial if you’re looking to move high-interest debt.

Comparing Rewards and Points Systems

Where business credit cards truly shine is in their rewards and points systems. These cards frequently provide more lucrative perks like cash back, miles and bonus points for business-related spending categories. With some of the best business credit cards, you can earn higher rates for advertising, travel, or telecommunications services – expenses typical for a small business or startup.

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Evaluating Credit Limits

Typically, business credit cards offer higher credit limits to accommodate the greater spending needs of a business. This can provide much-needed flexibility for businesses facing irregular cash flows and large, upfront costs. A higher credit limit can also improve your personal credit utilization ratio if you keep personal and business expenditures separate. Note that maintaining a good credit utilization ratio is crucial in managing your company’s financial health.

Remember, your business’ financial tools should work for you, helping you grow and manage your business effectively. Business credit cards come with structural perks, financial flexibility, and rewards strategies that can be leveraged for your company’s benefit.

Use these strategies to turn a card into a strategic asset for your business.

This article originally appeared on Score.

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