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Grow Your Business Finances

Do You Need a Small Business Credit Card?

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Credit: Dreamstime

Financing is always a top consideration for businesses. Whether you're just starting out or looking to expand, it's important to have access to liquid capital or a line of credit. Many entrepreneurs look for a business loan, but that's not always sufficient for working capital. For many entrepreneurs, especially those bootstrapping their companies, a dedicated business credit card is one option.

Of course, credit cards must be managed wisely to be effective for a business. If you can keep your credit debt in check, a business card could be a great alternative to taking out a loan.

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Credit card issuers such as Chase, Visa, Discover, MasterCard and the Open network at American Express offer cards tailored to owners of small businesses. Many of these cards come with specific benefits that can accrue as users make purchases. Some of the most common benefits are extra cards for employees, airline miles, gas rebates, rewards points and savings on business supplies.

Credit card companies also offer low or nonexistent 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 deal ends could result in hefty interest fees – on the whole balance, not just the remainder of what you owe.

Personal finance author Eric Tyson said that, if a small business owner decides to use a business credit card, they should know what they're getting into.

"Be sure to compare different ones and to understand the interest rates and other financing terms that they carry," he said.

Tyson doesn't recommend using credit cards to finance a startup, but he said that, if you do get a business card, it should remain totally separate from your personal credit cards. Mixing personal and business credit purchases makes it difficult to sort through your business expenses at tax time or if you get audited by the IRS. Keeping business and personal cards separate will also allow 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 tracking expenses.

While business credit cards can be a tempting way to keep a company afloat, using them as a regular practice is not advisable. Using them to buy some big-ticket item when money is temporarily tight is one thing, but their misuse can bring a business down.

"We always recommend against credit card usage by our clients to finance their venture, as it is a red flag for business failure," said John Hunter, a SCORE business counselor who has served in executive and consulting capacities with major domestic and foreign banks in New York City.

One way to prevent overextending your business's credit card debt is to commit to using only one card. Using multiple cards, one after the other, to pay all the bills and suppliers can be financially risky. Sticking to one helps maintain a reality check on your credit status and expense tracking.

Additional reporting by Adam C. Uzialko. Some source interviews were conducted for a previous version of this article.

Chad Brooks

Chad Brooks is a Chicago-based writer who has nearly 15 years' experience in the media business. A graduate of Indiana University, he spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including, local and state government, crime, the legal system and education. Following his years at the newspaper Chad worked in public relations, helping promote small businesses throughout the U.S. Follow him on Twitter.