Should You Get a Small Business Credit Card?

Businessman using business credit card

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If you’re starting your own small business or already running one and want to separate business purchases from personal expenses, you might want to consider applying for a business credit card.

According to experts, business credit cards often offer better perks than personal cards, such as discounts, airline miles, or higher cashback percentages. Some even offer business advice for clients.

You don’t need to be a big company to apply. Many startups, sole proprietors and small LLCs use corporate credit cards. Regardless of your small business structure, it’s worth considering getting a separate business credit card.

Here is some information on how to get started.

What is a business credit card?

According to Danielle Harrison, a certified financial planner and founder of Harrison Financial Planning in Columbia, Missouri. There are many reasons why you might want one for your small business.

“You can have authorized users and generally set different settings for your employees,” Harrison explained. “For example, you can say that in a month, your employees can only spend up to $500. This gives you more control than a personal credit card would.”

What is a business credit card used for?

A business credit card can help you track expenses, pay for day-to-day business needs, and give you the ability to accrue more benefits than a personal card typically offers. It can also help you separate your business operations from your personal finances.

Here are some other reasons to apply for a small business credit card:

  • You want to separate your professional and personal finances
  • You travel frequently for business
  • You want to get better benefits
  • You want to issue cards to employees
  • You want to keep track of most daily business expenses

You can use a regular small business credit card in some cases. For example, if you are a sole proprietor or a freelancer who has no intention of expanding, a business card may not make sense.

How do I qualify for a small business credit card?

Most small businesses can qualify for a small business credit card. This includes sole proprietorship, an LLC, a partnership, and different types of corporations.

Even if you have secondary or passive income in addition to your regular job, you may want to consider applying for a business credit card.

Business credit card issuers may look at your personal income and assets or those of a family or partner, especially if you’re just starting out, Harrison notes.

How does a business credit card work?

Business credit cards work much like personal credit cards. You can use the card for expenses, supplies, contractors, and other needs.

Experts recommend paying the card monthly if possible. That’s because interest rates are typically in the double digits – much higher than small business loans.

“The first thing to think about is what balance is really safe to keep if you can’t pay it off immediately,” noted Blaine Thiederman, Certified Financial Planner and Founder of Progress Wealth Management near Denver. “If you want to try to grow your business as fast as possible, you can’t just go into debt and hope you make good decisions.”

If you need longer-term credit, consider a multi-year small business loan that offers a lower interest rate, Thiederman suggested.

Do you need an EIN for a business credit card?

In most cases you will want to get a Employer identification number or EIN. This keeps your business transactions separate from your social security number and personal finances for tax and other purposes.

Advantages and disadvantages

Here are some pros and cons to consider when thinking about business credit cards:

Advantages

  • Business and personal finances are separated with different IRS identifiers
  • You can issue cards to employees
  • A business credit card lets you easily track your expenses
  • Generally, perks like cash back and travel rewards are better than personal cards

The inconvenients

  • If you need financing, credit card interest rates are usually much higher than other types of debt financing.
  • If you’ve just started a small business, you may need to co-sign a business credit card, which will put your life savings and personal assets at risk.
  • It’s easy to rack up credit card debt fast

How many credit cards are too many credit cards?

It depends on the income generated by your business.

“It’s about your income, your sales as a business, what you can afford. It’s about what’s prudent and responsible,” Thiederman said.

“If you have three or four different credit cards as a business owner and you max them all out? That’s probably not a good decision. If you have three or four credit cards and you max them all out at the end of each month before interest accrues, that means you’re probably doing just fine,” Thiederman added.

Do business credit cards check personal credit?

As a general rule, yes, especially if your business is not yet well established.

“Business credit cards often rely on the owner’s credit history,” Harrison said. “People think, ‘Oh, I can get a business credit card, and they’re not looking at all my personal information,’ but they do.”

That’s because business card issuers ultimately look to you, the owner, to secure or pay the debts. Additionally, owners are responsible for employees who are authorized business credit card users, Harrison notes.