How Do Business Credit Cards Work?

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Today, in this guide, we are going to consider how business credit cards work. We shall also look at what a business credit card is , disadvantages of using it etc. Let’s get started by considering what a business credit card is.


What Is A Business Credit Card?

Small company or business credit cards give owners of small businesses convenient access to a revolving line of credit with a defined credit limit for purchases and cash withdrawals. A small company credit card, like a consumer credit card, charges interest if the balance is not paid in full each billing cycle. Your bank may be able to provide you with a credit card, or you can apply online.

A business credit card can be a convenient way to get short-term financing and boost your company’s purchasing power. It’s frequently promoted as a more appealing alternative to a regular line of credit. A business credit card, like any other form of finance, has a cost and must be carefully handled.

How Do Business Credit Cards Work?

Let us now consider how business credit cards work…

Business credit cards function similarly to personal credit cards in that they provide access to a line of credit at the point of sale, as well as bonuses, incentives, and benefits. Your business credit card, unlike a personal card, is designed to fund your company’s spending rather than your own.

But they are only a few of the distinguishing features of business credit cards, which we’ll go over in greater depth later. You’ll be able to make an informed decision about which cards to apply for and how to use them after you understand how business credit cards work.

What You Need To Know About Business Credit Cards

They are easier to qualify for

While you’ll need to give lots of credentials to qualify for a small business loan—such as solid revenue, time in business, credit score, industry risk, and more—credit card providers won’t ask for nearly as many. The entire application and underwriting procedure takes only a few minutes (unlike a small business loan application, which can take days or weeks).

Credit cards also provide you with immediate access to funds, making them ideal for satisfying your company’s short-term needs—think material purchases, client dinners, internet services, and filling up your tank in between meetings. And, as more firms abandon cash in favor of internet transactions, having a business credit card in addition to cash will become increasingly important. Not to mention that they’ll make you appear more professional, which will boost your company’s trustworthiness.

Business credit card issuers consider both your business and your personal financials

Your card issuer will ask for information about your business financials, such as your income and projected monthly spend, on your business credit card application. (They’ll use this information to decide whether you’re eligible for the card and, if so, the size of your credit line.)

Don’t worry if you’re a startup with little to no business income—as the primary cardholder, you’ll also submit your personal income and outstanding debt on your application. That’s how they’ll figure out your debt-to-income ratio, which tells the card company if you have the financial means to take on more debt. Your card issuer may still approve you for a business credit card if you can demonstrate that you can repay what you owe, whether using funds generated through your firm or not.

Your personal credit score

During the application procedure, the card issuer will check your personal credit score. For a corporate credit card, it may appear intrusive (or at the very least irrelevant) for the card issuer to check your personal credit score. Your credit score, on the other hand, is a numerical representation of how successfully, or poorly, you’ve previously honored your loan obligations. You can see why the card issuer — or any other small business lender — would look at the primary cardholder’s personal credit score as a solid indicator of how successfully they’ll manage their company’s debts.

As a result, it’s a good idea to check your credit score ahead of time to understand where you stand. This will help you figure out which cards you’re eligible for—most cards have a minimum credit score requirement.

Keep in mind that the more credit card applications you submit, the lower your credit score will be, as card issuers conduct a hard credit inquiry with each application. To lessen the odds of this happening, do your homework on which credit cards are ideal for you and apply for only a few at a time.

They may affect your personal credit score

Although credit card providers may evaluate your personal credit score as part of the screening process, using your business credit card may have no effect on your personal credit score. It all relies on whether the issuer reports credit activity to the consumer credit bureaus as positive, negative, or both (the three biggest are Equifax, Experian, and TransUnion). To find out how and where the card issuer reports card activity, contact them directly.

However, most business credit card issuers do report credit activity to the commercial credit agencies (Dun & Bradstreet, Equifax, and Experian), which is a good thing because a good business credit score can help you buy more things over time. Although credit card issuers don’t usually take your company credit score into account when approving your application, some small business lenders may. When a result, as you establish a company credit history through responsible card usage, you’ll be in a better position to qualify for a traditional business loan down the road.

They offer perks and rewards

Your corporate credit card, like your personal credit card, may provide a range of rewards programs, such as cash back, redeemable points, and travel insurance.

These rewards schemes, unlike your personal card, are designed particularly for corporations. For example, depending on where you make your purchases, the Chase Ink Business Cash Credit Card gives you 5%, 2%, or 1% cash back. However, all of those spending categories include common business expenses like office supplies, cell/internet/cable services, gas, and eating out. Business credit cards frequently have higher credit limits than personal credit cards, allowing you to pay for the tools and resources your company requires.

They don’t offer the same protections as personal credit cards

There are numerous reasons to utilize a company credit card, yet nothing is perfect in life (or in small business finance). On the flipside, most business credit cardholders do not have the same safeguards as consumers.

The Credit CARD Act of 2009, in particular, does not apply to business cards. To mention a few things, this act limits interest rate hikes and gives cardholders the option to opt out of significant changes to their account terms. As a result, before applying for a business credit card, make sure you thoroughly investigate the level of security provided by the card.

Your employees can use them

One of the most appealing features of business credit cards is the ability to add employee cards. However, there is another area where you could find yourself in financial difficulties, so proceed with caution.

Consider who actually needs a corporate card before distributing them, and restrict access to company cards to only the most essential employees. Then, to prevent overspending or fraud, set up activity alerts, track purchases, and set spending restrictions (which can often be customized for each card). You will be able to defend your company against employee mismanagement as a result of this.

Personal guarantee is needed to secure it

Almost all business credit cards require the cardholder to sign a personal guarantee, which means you’re personally and legally responsible for repayment if the principal payer (your company) fails to satisfy their debt commitments. As a result, if your business experiences financial difficulties and you fall behind on payments, the card issuer has the ability to pursue your personal assets in order to reclaim the debt.

“Commercial liability” and “joint and several liability” are essential terms to look for in the fine print. The term “commercial liability” refers to the company’s responsibility for all debts. The term “joint and several responsibility” refers to the fact that the business and the person who opened the card are both accountable. So, even if you’re only using your company credit card for business expenses (right? ), keep in mind that if your business can’t pay, your personal coin purse is at risk.

Business Credit Card Disadvantages

Before you rush and apply for a business credit card, make sure you check through some of it’s disadvantages below:

More Expensive

Small business credit cards have a higher interest rate than a small business loan or fixed line of credit issued by a bank, so their convenience and ease come at a cost. If card activity is not repaid on time and in full each month, interest can quickly accumulate. Furthermore, without a system in place to track card usage on a regular basis, it’s possible to overextend your company financially by exceeding its credit limit or incurring late fees and penalties.

Personal Legal Liability

To repay debt on many small business credit cards, you’ll need to sign a personal-liability agreement (your personal security). This means that each missed or late payment could result in a bad credit rating and the inability to borrow money on your own. With a higher interest rate, you may also have to pay more.

Security Problems

Employees, vendors, contractors, and others who walk through the office area should not be able to steal cards or card information, so security measures should be put in place. It’s also crucial to ensure that employees with access to the card don’t use it for personal purchases and that they use caution when conducting online transactions to avoid being hacked.

Less Protection

Small business credit cards don’t always come with the same level of security as consumer credit cards. When contesting billing issues or needing to return something, for example, many cards will not provide the same amount of assurance. Before applying for a card, make sure you understand the amount of protection and services it provides.

Fluctuating Interest Rates

Unlike a loan or a fixed line of credit, the credit card company can change your interest rate based on how you use and manage your account. As a result, understanding how rates function and change might be beneficial.

Frequently Asked Questions

What is the best business credit card?

Your company spending patterns, your goals in holding a certain business card (such as if you desire rewards or a 0% introductory APR offer), and your personal credit history will all play a role in determining the appropriate business card for you. There isn’t a single best card that can meet everyone’s requirements.

Can I apply for a business credit card without a business?

It’s possible to get authorized for a business credit card even if you don’t have a business yet, whether it’s a full-fledged venture or a side hustle from your corporate work. That’s because one of the deciding reasons for business card approval is usually your personal credit score. If your FICO score isn’t quite up to par with your company plan, there are a few secured credit cards for businesses that can help you build your credit while you establish your brand.

You are individually liable for any debts incurred on nearly all small business cards, just as you are with a personal credit card. In other words, if your company fails, you’re still liable for any outstanding debt on your credit card.


You have now seen how business credit cards work! We hope you enjoyed reading our guide today and have learnt new things. Check our site again next time for more informative articles on loans, insurance, credit cards etc..

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