Business credit card: What is it and how to use it for small business expenses?

If you have an idea or plan to start your venture, your first thought will be finances. Of the many financing options available, a credit card is a feasible option as many banks may not lend to a new business due to a lack of credit reports.

What is a business credit card?

A business credit card is designed for businesses, in contrast to personal credit cards, which are meant for individual expenses. Business credit cards are particularly beneficial for small business owners, who can keep their business and personal transactions separate to track costs and for tax purposes.

Personal credit card or business credit card

Compared to a personal credit card, a business credit card is less risky even if the business fails. If you use a personal card to finance your small business, there is a risk of accumulation of debt if the business does not reap profits. Opt for a business card as they have a higher credit limit due to the scale of expenses involved in a business compared to your regular purchases.

Credit limit for business credit cards

Your credit history and profile will determine the credit limit for your business credit card. Banks will also consider the credit history of the business, annual income and location of your venture before deciding your credit limit.

A good credit history will help you to get a higher credit limit. The maximum credit limit on your business credit card may differ from bank to bank. Please check your bank’s website or contact customer service to learn about the maximum credit limit on your business credit card.

How should you use a business credit card for your small business?

It is advised to make online payments or POS transactions through your business card. Avoid withdrawing cash from your business credit card, as this may attract additional ATM withdrawal fees. Make sure to pay your credit card bill before the due date to avoid interest charges.

Why should you use a business credit card as a small business owner?

• A business credit card provides revolving credit that allows you to make payments up to your credit limit and pay bills on time. After paying bills on time, you can still spend up to the limit again, and this cycle goes on.
• Since business credit cards have higher credit limits, they offer more rewards, offers and cashback. However, the amount of rewards may differ from bank to bank.
• It is easy to get a business credit card if you have a credit card already. A credit card helps to determine your credit history and credit score accurately. Hence, it becomes easier to get a business credit card.

Disadvantages of a business credit card for small businesses

Personal credit history: A business credit card needs a personal guarantee from the user. You will need to qualify for a business credit card based on your credit history and profile. Therefore, it is important to have a good personal credit history; if you do not have a good credit history, your application may be denied.

High costs: It might become costly to maintain a business credit card as they charge higher interest rates and high annual fees. Interest rates and annual fees may differ from bank to bank.

In conclusion, before getting a business credit card as a small business owner, explore all your financing options. Choose a funding option suitable to your financial capability, the nature of the business, and the risks associated with it.