Business Credit Cards

Small business credit cards bring certain things to the table that general-consumer credit cards do not. For one thing, small business credit cards make it easier to track company spending. Many even provide quarterly and end-of-year expense reports that simplify tax season.

Business credit card accounts also allow you to give employees cards with custom spending limits that you can change as needed. You’ll even earn rewards on what they charge to these company cards.

That’s important because rewards are the best thing about business plastic. Business credit cards typically offer generous rewards in key expense categories, such as office supplies and telecommunication services. And the best offers will help you save hundreds of dollars per year.

In other words, filling out a business credit card application is a way to simplify and improve your business operations.

The biggest reason not to get a business credit card is if you need plastic for financing purposes. If you don’t plan to pay your bill in full every month, a 0% consumer credit card is likely to be a far better option.

That’s because business credit cards were not excluded for coverage under the CARD Act. This legislation, enacted at the end of the Great Recession, has made the general-consumer credit card market much more transparent. And it has drastically improved consumer rights.

The biggest downside for small business owners is that business credit cards aren’t covered by the rule preventing card issuers from increasing the interest rates on existing balances for no reason. As a result, business credit card balances are risky and unpredictable. And that means it’s a bad idea to carry a balance from month to month with business plastic.

Business credit cards are available to people of all credit levels. There are even a few secured business credit cards for small business owners with bad credit. But as is the case with any other credit card, people with the highest credit scores tend to get the best terms.

Perhaps surprisingly, however, your personal credit standing will be the deciding factor when you apply for a small business credit card. So if you have good personal credit and a new company, for example, you shouldn’t fall into the tap of focusing on business credit cards for new businesses.

If you don’t know what kind of shape your personal credit is in, you can check your latest credit score for free on WalletHub.

We get this question all the time. People want to avoid bringing their work home with them, not only mentally and emotionally, but financially as well. They want there to be no connection between their business and personal finances so their family’s financial wellbeing won’t at risk should their venture fail.

That’s the dream, at least. Reality is very different. All major credit card companies hold business credit card customers personally liable for unpaid balances, according to WalletHub research. They also send business credit card account information to cardholders’ personal credit reports on a monthly basis.

So the idea that business credit cards somehow shield your personal finances is little more than a myth. If it were true, you probably wouldn’t have to list your Social Security number on business credit card applications.

Why are small business owners held personally liable for company credit card debt? They simply aren’t large enough entities to warrant limited liability. Small businesses are usually funded by one or two individuals, whose personal finances are directly connected to the company’s. So banks consider joint liability between a small company and its owner(s) to be more than justified.

While you can’t completely escape personal liability as a small business credit card user, you can minimize the odds of it coming into play. You can do so by strategically approaching business spending and opening credit cards with the best rates and fees. The best defense against liability problems is intelligent decision-making.

There is no rule against using a small business credit card for personal purchases, or vice versa. Blurring the lines a bit is actually a good strategy. Business credit cards are great for earning rewards on everyday expenses but bad for financing. So it makes sense to use a business rewards credit cards for everyday company spending and a 0% consumer card for big-ticket purchases that will take months to pay down.

You may also want to use a business credit card for certain personal expenses if it provides better rewards than your personal finance. Office supplies are a good example. Many business credit cards offer excellent rewards on purchases made at office supply stores, which makes them perfectly suited to back-to-school shopping.

Building business credit is really no different than building personal credit. One big reason for that is business and personal credit are often one and the same. When you apply for a business credit card or loan, whether or not you get approved will largely depend on your personal credit history. That’s why there’s a field for your Social Security number on business credit card applications, for example.

This makes sense when you think about it. Most small business owners’ personal finances are deeply intertwined with those of their companies. Plus, the skills required to be a good borrower are pretty much the same for small business owners and the general public. And since people tend to have much longer credit histories than companies, personal performance gives lenders a better idea of what to expect moving forward.

With that being said, business-specific credit scores and reports do exist. Some lenders consider them to a certain extent. But they’re most common with business-to-business financing arrangements. Most importantly, the same fundamentals apply as with building personal credit. If you pay your bills on time and don’t become too reliant on debt, your credit standing will improve.

For more information, check out WalletHub’s guides on building business credit and building credit, generally.