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Do You Need a Small Business Credit Card?

Updated Oct 23, 2023

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Small business owners need to closely monitor their finances and manage cash flow, especially in the first few years of operation. One way to purchase the essential goods or services your business needs without delaying critical payments for other vendors is to get a small business credit card.

There are pros and cons of using a small business credit card, and it’s important to consider both before deciding whether getting one is the right move for your business.

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Does your small business need a business credit card?

Your company’s need for a business credit card may depend on your size, industry, overhead and growth potential. A business credit card might be necessary for you if:

  • You own a hospitality or foodservice business: In the early years of running these businesses especially, costs can strongly outweigh revenue, making a credit card helpful for further spending. After moving from growth or expansion to maturity, renovations and bulk orders may be costly enough to merit credit card purchases too. 
  • Your labor and rent costs are high: Employee wages and office or storefront rent can be among your highest business costs. They may leave little cash available for covering other necessary services or purchasing other key products. With business credit cards, you can cover these costs and repay them with the cash you bring in later.
  • You need to outsource increasingly more functions: Across industries, business credit cards may help you afford increasingly more tasks as your company grows. This is especially true if you can’t quite afford, or you don’t qualify for, the best business loans. Credit cards may be more accessible than these loans and give you thousands of dollars to spend on marketing, recruiting and outsourced HR
  • Cash back rewards would significantly impact your bottom line: With many business credit cards, you earn money as you spend. These cash back rewards may prove helpful for bolstering your cash flow or paying for certain purchases. They can quickly add up if you spend tens of thousands of dollars on your credit card. 
  • Your employees spend money on your company’s behalf: Some business credit card providers will allow you to create employee cards tied to your account. This can be highly useful if your employees often spend money on your business’s behalf. When they do so through your business credit card, the charges immediately go to your account. This is much more organized and expedient than employees making business purchases on their personal cards and then filing expense reports for reimbursement.

Your business likely doesn’t need a credit card if:

  • Your current revenue covers your current costs: In this case, you would only need a credit card to delay paying purchases you simply don’t want to pay for now. This isn’t a matter of direly needing more funding, so it may not be worth exposing yourself to potential late payment fees.
  • Your business is mature or otherwise unlikely to expand: Credit cards can be a boon for covering expansion costs you can’t afford with your cash on hand. If your company is mature ― or so new that business growth isn’t yet in the picture ― credit cards may thus not be helpful. 
  • You have easy access to more favorable types of funding: Credit cards can become highly expensive if you don’t quickly pay off your balance. Their high annual percentage rates can lead to significant charges over time if you keep lacking cash to cover your debts. Other types of funding, such as term loans, may have lower rates and longer repayment periods. Although their qualification criteria typically are much stricter than for credit cards, if you do qualify, you’ll likely get more money on more favorable terms.
  • You need funding for long-term debts or large purchases: Business loans again beat credit cards on this front. High-quality loans are designed with interest rates and repayment periods that minimize expenses on your debt in the long run. Using credit cards for purchases that you repay in the long run will generate huge amounts of interest that you might struggle to afford.

What are the pros of getting a business credit card?

Some small business owners may be hesitant to apply for a card. After all, why spend money you don’t have? However, when used strategically, small business credit cards can be helpful. Here are three benefits business credit cards offer.

They keep personal and business expenses separate.

Separating business and personal expenses helps a lot when filing your taxes and getting a business credit card makes the separation process easier.

“Most small businesses should have at least one small business credit card,” said Dave Grossman, founder of YourBestCreditCards.com. “The first and, perhaps most obvious, reason is to keep your personal and business expenses separate. By having one or more cards used exclusively for your business, you’ll make it much easier for you or your bookkeeper to reconcile your business spending.”

Business credit cards offer short-term spending flexibility.

During months when you don’t have cash on hand to pay invoices or unexpected expenses crop up, business cards can be a helpful way to cover those costs. However, it’s important to not treat a credit card like free money or a way to spend more money than you have or expect to come in.

They provide rewards and perks not available to consumers.

Some credit card companies offer tremendous rewards packages to small businesses. These benefits might be appealing, especially if you currently use your personal card to make business purchases. The money you spend with a business credit card can help you earn bonus points that you can apply to other purchases.

“Most business credit cards offer some kind of cash back rewards or points to their users,” said Logan Allec, a certified public accountant and owner of tax relief company Choice Tax Relief. “If you plan to charge a significant amount each month to your credit card, then these rewards or points can be substantial. When every little bit of money counts for a small business, the ability to make some extra income via cash back or points can play a big role in your business.”

Some credit card companies may even offer cash as a reward through cash back programs. Different cards offer different bonus systems. It’s important to find the system that offers rewards that your business will use. If you can benefit from travel rewards, look for credit cards that offer travel rewards points. If your business would best benefit from a cash back program, take a closer look at companies with those offerings.

Key TakeawayKey takeaway

A small business credit card can fund short-term purchases, provide perks like airline miles or cash back and keep your personal and business expenses separate.

What are the cons of getting a business credit card?

Business credit cards can be tricky to manage. Three concerns with business credit cards are:

You can overextend yourself with too many cards.

Using multiple cards to pay all of your company’s bills and suppliers is financially risky. Commit to using only one card. Using only one credit card helps you more closely manage your expenses and monitor your credit status.

Depending on the size of your team, getting cards for employees to use may make sense. If you have 50 employees, getting two or three cards to use for different expenses won’t cripple your business if your workers use the cards responsibly and for minor purchases. However, you still need to scrutinize their monthly statements to ensure they are using the card responsibly.

You could spend more than what you can afford.

It’s not advisable to use a small business credit card to fund your business. It’s safer, especially from the view of potential investors, to fund your business using loans or outside investors.

Do not use a business credit card to make risky purchases. If you can’t repay the balance, you’ll be charged interest and may incur other fees, thereby increasing your debt.

“As with personal credit cards, the main disadvantage to small business credit cards is the potential interest expense if you carry a balance,” said Matt Frankel, a registered investment advisor at Frankel Wealth Management. “Also, it’s worth mentioning that small business credit cards generally require a personal guarantee ― in other words, the account’s payment history will be reported on your personal credit report. This can ultimately be a good or bad thing, but it’s important to know that your personal credit will be tied to your business’s ability to repay its debt.”

You could accidentally use it for personal expenses.

It’s important to only use your business credit card for business expenses. This distinction is important legally, ethically and financially.

“A large benefit of a small business [credit card] is the fact it separates your finances from personal and business,” said Allec. “However, carrying a small business credit card with you each day increases the likelihood that you could accidentally intermix your finances by using a corporate card for a personal expense. Not only does this impact your liability, but it can create a huge headache come tax time.”

What should you consider when getting a business credit card?

Credit card issuers such as Chase, Visa, Discover, MasterCard and the Open network at American Express offer cards for small businesses. Here are some of the key factors you may come across as you research your business credit card options.

Cash back, airline miles and other benefits

Many business credit cards come with specific benefits that accrue as users make purchases, such as cash back, airline miles, gas rebates, rewards points and savings on business supplies.

Interest rates

Credit card companies often offer low or 0% interest rates on new cards. No-interest credit cards give you a limited-time opportunity to finance your business without paying a penny of interest.

However, missing a payment due date or not paying off the total before the promotional period ends can result in hefty interest fees on the whole balance in some cases, not just the remainder of what you owe.

If a small business owner decides to use a business credit card, they should know what they’re getting into, said personal finance author Eric Tyson.

“Be sure to compare different [cards] and to understand the interest rates and other financing terms they carry,” he said.

Annual fees

If one credit card issuer charges an annual fee but another doesn’t, you may be swayed to choose the card without the annual fee. However, the company that charges an annual fee may offer more opportunities to earn rewards points. Some credit card companies may offer small business credit cards with high foreign transaction fees, while others might have different rates on their fees. If you work with a foreign supplier regularly, this is an important consideration.

Some companies, such as Chase, offer benefits like Chase Ultimate Rewards. Capital One’s line of Spark business credit cards include options for cash back rewards and airline miles. Would those perks help your small business? Are there major differences in transaction fees between the credit card companies? Do you want employee cards? All of these are important considerations when deciding whether to get a small business credit card.

Proper business credit card use

It’s also important that you understand how to use a business credit card. A card can help with short-term debts, but it shouldn’t be used for long-term needs, like financing a business or making massive purchases, that you won’t be able to repay in a few months.

“Even the best credit cards have high interest rates,” said Brian Cairns, founder of ProStrategix Consulting. “If you are using them for purchases that you will pay off in one to three months, they are fine. If you are taking on debt that requires you to carry balances for longer, you probably have other business issues. In that case, I would not recommend a credit card, and you would not be likely to get a reputable one.”

TipTip

Just like a personal credit card, a small business credit card can be a great tool when used strategically and with restraint.

Business credit cards can be great ― if they’re right for you

When your business needs extra funding to cover short-term costs, business credit cards can be a great fit. They’re also a smart choice if your employees often spend on your company’s behalf or your overhead and outsourcing costs are increasing. However, for larger costs ― or if you worry about mixing personal and business finances ― other financing options may prove superior. There’s no shortage of funding sources for your business ― cards are only the start.

Max Freedman and Stella Morrison also contributed to this article.

Bennett Conlin
Contributing Writer at businessnewsdaily.com
Bennett is a B2B editorial assistant based in New York City. He graduated from James Madison University in 2018 with a degree in business management. During his time in Harrisonburg he worked extensively with The Breeze, JMU’s student-run newspaper. Bennett also worked at the Shenandoah Valley SBDC, where he helped small businesses with a variety of needs ranging from social media marketing to business plan writing.
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