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Do You Need a Small Business Credit Card?

Bennett Conlin
Bennett Conlin
Staff writer at Business.com

Small business credit cards can help with short-term debts.

  • Using a small business credit card responsibly separates your business expenses from personal expenses.
  • Only use your company credit card for business expenses.
  • If you elect to get a small business credit card, find a credit card issuer that offers rewards that benefit your business.
  • This article is for small business owners considering opening a credit card for their company.

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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Are small business credit cards a good idea?

Personal finance author Eric Tyson doesn't recommend that small business owners use credit cards, but if you get a business card, it should remain separate from your personal credit cards, he advised. Mixing personal and business credit purchases makes it difficult to organize your business expenses at tax time or if you get audited by the IRS.

Keeping business and personal cards separate also allows you to take advantage of quarterly and annual statements provided by your credit card company. These statements break down your expenses into categories and can be very helpful when you're creating budgets and tracking expenses.

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."

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

Business credit card options

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 options 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 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, like 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.

Key takeaway: Many companies and financial institutions offer small business credit card options with varying benefits, fees, and interest rates.

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.

As mentioned earlier, 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 CPA and owner of the personal finance site Money Done Right. "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 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.

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 certified financial planner and personal finance expert at The Ascent. "Also, it's worth mentioning that small business credit cards generally require a personal guaranty – 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."

Additional reporting by Stella Morrison.

Image Credit: FlamingoImages / Getty Images
Bennett Conlin
Bennett Conlin
business.com Member
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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.