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Similar to a personal credit card, a business credit card allows you to borrow money and make regular payments towards it. However, business credit cards usually have features designed with business owners in mind, such as complimentary employee cards and rebates on regular business expenses, like stationery.
Business credit cards offer other benefits as well. Unlike other forms of business financing, they may be available to you even if your company is small or new. They are excellent tools for keeping your personal and business finances separate. Making your payments on time can also help you establish business credit.
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- Business credit cards allow small businesses to better track their spending and can assist cardholders in handling business expenses.
- Higher credit limits, rich rewards, business-related benefits, and extra credit cards for your staff members on the primary account are all common features of these cards.
- If your company is unable to pay, your issuer may request a personal guarantee, which entails you taking full responsibility for the debt. Furthermore, these cards do not provide the same consumer protections provided by the CARD Act.
Credit cards are now a commonplace item in our daily lives, providing a quick and easy way to pay for necessities as well as indulgences. Similarly, if you manage your own company, a business credit card can assist you in covering costs associated with buying supplies and maintaining operations. Similar to personal credit cards, business credit cards come with benefits like point or mile accumulation, cash back opportunities, and the option to finance a large purchase at 0% APR for an initial period.
A business credit card can be a helpful addition to your overall financial plan if it is used responsibly. What you should know about this particular kind of credit card is as follows.
What is a business credit card?
A business credit card is a specific kind of credit card that is intended for business owners and entrepreneurs, providing special advantages appropriate for companies of all sizes. Business credit cards usually have higher credit limits, more rewards potential, employee cards, and resources to help manage and monitor business spending in comparison to personal cards.
Your business card can help you pay for cyclical needs like snow supplies or other winter demands, as well as fixed costs like rent and utilities. It can also help you manage changes in cash flow.
How a business card works
Similar to personal credit cards, business credit cards operate by allowing you to charge purchases made using a credit line to your card. At the conclusion of each billing cycle, you receive a statement that includes the total amount due as well as the minimum amount required.
You don’t pay interest on those purchases if you pay your bill in full each month. However, if you have a balance, interest will start to accrue according to the interest rates on your card. In general, the more creditworthy your company is, the more probable it is that your application for a credit card will be granted at a favorable rate.
However, a lot of business cards are really charge cards, which usually need to be paid in full each month. The primary benefit of charge cards is that their credit limits are typically unset. However, they might not be the greatest option for more recent companies whose owners want to pay for their expensive startup costs over time, or for those whose revenue is erratic. However, because charge cards have no cap on spending, they can be perfect for well-established companies whose large monthly expenses are budgeted for.
Although premium cards with the best sign-up bonuses, rewards, and perks usually come with an annual fee, many business cards don’t.
Benefits of a business credit card
The credit limit on a business card can be useful for both ongoing costs and the unavoidable instances of irregular cash flow that come with operating a company.
- Higher credit limits. Compared to consumer credit cards, business cards usually offer larger credit limits and are more appropriate for business needs.
- Track business spending. These cards let you keep your business and personal expenses apart, which makes it easier for you to keep track of your finances and file your taxes.
- Extended interest-free periods. Issuers are able to extend interest-free financing terms to business owners beyond the standard 21-day window for personal credit cards. This benefit may provide you with more time to pay off your balance and more freedom to invest in your business.
- Extra rewards. The greatest credit cards for business use give you greater and more substantial rewards for your purchases. For instance, if your line of work necessitates frequent travel, you may be able to accrue points or cash back for your account’s employees as well as for travel, accommodations, and rentals.
- Business-related perks. You can obtain benefits tailored to your industry, like complimentary usage of accounting software and service rebates for your company.
- Generous sign-up bonus. These cards frequently have an annual fee, but they typically have better sign-up bonuses than consumer cards.
- Higher caps on spending. Additionally, a lot of premium business cards have higher spending limits, which could lead to larger monthly cash back bonuses that you could use to expand your company.
- Employee cards. With business cards, you can add staff members to your account and give them specific permissions about where and how they can make purchases for your company. You can keep track of every employee’s expenditure and accrue points, money, or miles for purchases made by staff members. Additionally, you can establish personalized credit limits based on their roles.
Disadvantages of a business credit card
While a business card’s advantages frequently exceed its drawbacks, you should be aware of any potential drawbacks before choosing between a personal or business card.
- Personal guarantee required. A guarantee that holds you personally liable for any credit card debt your company is unable to pay is often required by business card issuers.
- High annual fees. The most costly business cards have yearly fees of $500 or more, but these are frequently offset by substantial rewards and benefits on your business expenses, such as travel both domestically and abroad, client dinners, and supplies and services.
- No CARD Act protections. The Credit Card Accountability Responsibility and Disclosure Act of 2009, or CARD Act for short, does not grant business cards the same protections as consumer cards. The CARD Act gives consumers additional protections, such as requiring card issuers to notify customers in advance of any intended interest rate increases. To find out about issuer protections that apply to your business, review the fine print on your card.
How a business card impacts your credit
Your issuer will examine your credit history and score to evaluate your creditworthiness and likelihood of making timely repayments of the charges made on your business card before granting you credit.
Issuers want assurance that someone will take responsibility in the event that your company struggles to pay its debts or, in the worst case scenario, closes down. Therefore, it’s likely that you’ll have to sign a personal guarantee committing you to paying back any debts that your company is unable to pay.
The majority of issuers of business cards notify business credit reporting agencies of the debt. Issuers that report to the major consumer credit bureaus include Capital One and Discover. Find out who gets your debts and payments and when by reading your credit card agreement.
Even if your personal credit is subpar, you can improve your business credit score and obtain larger credit lines and other loans to expand your enterprise by using your business credit card sensibly.
Applying for a business credit card
The issuer of the business credit card will request information about your company and yourself when you apply. Your firm’s tax identification number, business name, and business structure, as well as your company financials, including sales and profit figures, and details like the company’s founding date and location, should be available in addition to your name, address, and Social Security number.
The greatest small business credit cards are designed with your company’s needs in mind, giving you the freedom to manage spending and earning you significant rewards on both your own and your employees’ purchases. These cards frequently come with larger credit limits than consumer cards, as well as features that make it easier for you to file your business taxes and keep track of your accounting. First, select a card that best suits your business needs. Next, evaluate sign-up bonuses and rewards programs that suit your sector of the market.
FAQ
What’s the point of a business credit card?
Small businesses can use business credit cards to better track their spending and assist cardholders in handling business expenses. Higher credit limits, rich rewards, business-related benefits, and extra credit cards for your staff members on the primary account are all common features of these cards.
What is the difference between a business and a regular credit card?
Because they account for your current credit score, personal income, and business revenue, business credit cards usually have higher limits than personal credit cards. You would probably receive a higher credit limit on a business card than on a personal one if your business’s revenue exceeds your personal income.
Do you need income for a business credit card?
The good news for new businesses and occasionally side hustlers without any noticeable business income is that approval for a business credit card is usually based on your personal credit and financial history rather than your business financials.
What business qualifies for business credit card?
A business credit card is available to partnerships, freelancers, and sole proprietors. To take advantage of business credit, the company does not need to be registered or incorporated.
Read More :
https://www.bankrate.com/finance/credit-cards/business-credit-cards-and-how-they-work/
https://www.nerdwallet.com/article/small-business/what-is-a-business-credit-card