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Business Debit Card vs. Credit Card: Which Is Right for Your Business?

Business Debit Card vs. Credit Card - Which Is Right for You?
Jason Steele

Jason Steele

Updated June 24, 2022
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Business owners rely on specialized tools to get their jobs done. And when it comes to making payments, there are two tools that are very popular: business debit cards and business credit cards. A business debit card is used to make purchases from existing funds while a business credit card draws from a line of credit. Each has its own advantages and drawbacks that you need to be aware of in order to determine which is right for your business. When looking at a business debit card vs credit card, there’s a checklist of things to be aware of. Some advantages are obvious, but others are less so.

What Is a Business Debit Card?

A business debit card is a payment method that deducts money directly from a checking or savings account in order to pay for your purchases. It looks much like a credit card and is part of a payment network, such as Visa or Mastercard. And you can use a business debit card anywhere that participates in that payment network. Business debit cards won’t require you to have any established business or personal credit to apply for one, and its use won’t affect your credit. Business debit cards typically draw funds from a business checking or savings account, however, there are prepaid business debit cards that have funds placed in a dedicated card account. 

Types of Business Debit Cards

In order to choose the best business debit card for your needs, you should know about the several types available. A common type of business debit card are those issued by banks that draw on a business checking or savings account. These cards work just like the check cards or debit cards issued to consumer’s checking or savings accounts. Another type of business debit card is the prepaid card. These cards aren’t connected to a bank account, but you must deposit funds before you can use them. As you make purchases with a prepaid business debit card, the amount of your purchase is subtracted from the card’s available balance. You can then reload funds into your account via direct deposit or by adding cash at an authorized reload center. 

Pros and Cons of Using a Business Debit Card

Using a business debit card offers several advantages and drawbacks. The advantages include having money drawn directly from your account, which prevents you from ever incurring debt. And with no debt, there will be no interest charges to pay. Also you don’t have to make payments, which means nothing to keep track of and you can’t incur any late fees. The disadvantages include the possibility of incurring other kinds of fees, such as monthly fees, overdraft fees, ATM fees, and minimum account balance fees. And because you can’t make purchases in excess of the amount you have on deposit, you can’t use business credit cards to finance purchases. You also can’t use a business debit card to build personal or business credit. And if your card is lost or stolen, you have a greater risk of incurring losses than you do with a credit card.

What Is a Business Credit Card?

A business credit card is a revolving business line of credit designed for use by small business owners. However, business credit cards typically require the business owner’s personal guarantee of repayments, and rely on the owner’s personal credit. Therefore, you have to be aware that a business credit card will affect your personal creditLet’s go deeper on business credit card vs debit card.

Types of Business Credit Cards

There are many types of business credit cards, including those that offer rewards. The best business credit cards can offer premium travel benefits, while some function only as credit cards. Some business credit cards are secured cards that require the payment of a refundable security deposit. Others can have features such as low interest rates or 0% Annual Percentage Rate (APR) financing of new purchases, balance transfers, or both. Business credit cards can also offer rewards for spending, including generous new account bonuses. Corporate cards are similar to business credit cards. These cards are used by medium- to large-sized business and government entities. The organization applies for it based on its  business credit, and the account holders are personally responsible for repayment. Once you start understanding your business credit score, you’ll learn that some business credit cards can be useful for building business creditLearn more: Compare business and personal credit scores

Pros and Cons of Using a Business Credit Card

Like business debit cards, business credit cards have numerous advantages and drawbacks. The advantages of a business credit card include the ability to earn rewards for your spending and enjoy benefits. Business credit card benefits can include purchase protection and travel insurance, as well as perks like airport lounge access and hotel upgrades. Business credit cards can also offer expense tracking and reporting features that can help simplify your accounting and tax preparation. One of the disadvantages of business credit cards is that you have to apply for them, and you have to have sufficient personal credit to gain approval. And as with personal credit cards, business owners can incur debt and pay interest charges when using business credit cards. With a business credit card, you have to make regular monthly payments and you can damage your personal credit if you fail to make your payments on-time.

Differences Between a Business Debit Card and Credit Card

While both business debit and credit cards have advantages and drawbacks, it’s important to contrast these two products. A business debit card requires no credit check to apply, it can’t help or hurt your personal credit, and it can’t incur debt or interest charges. A business credit card can offer rewards for spending, unlike a business debit card.Business credit cards can also have valuable travel insurance and purchase protection features that are rarely found on business debit cards. You have to make monthly payments when using a business credit card, but not a debit card. Business credit cards offer expense tracking and reporting features, while business debit cards don’t.

Picking the Option That Works Best for Your Business

While business credit cards and business debit cards have a lot in common, there are also plenty of differences. Therefore it can be difficult to choose which one makes the most sense for your business needs. A business credit card is best for those who already know how to use credit cards responsibly, and want to extend the advantages of credit card use over to their business. For example, someone who already uses credit cards to earn valuable rewards, such as points, miles, or cash back, can use business credit cards to earn more rewards. Likewise, someone who is already familiar with the benefits offered by personal credit cards can use the corresponding business credit cards to earn even more benefits. For example, business credit cards that feature rental car insurance benefits can be particularly important for business travelers. And, if you’re choosing between a business line of credit and a business credit card, consider all the benefits offered by the credit card.Business credit cards, like personal cards, are also best for those who avoid interest charges by paying their entire statement balance each month. When you do that, you won’t just avoid interest charges, but you’ll also eliminate the possibility of going into debt. But even if you’re not always able to pay your balance in full every month, a business credit card can offer substantial value by allowing business owners a convenient means of short-term financing. For example, a contractor might have to purchase supplies for a job before he or she is paid, and having a credit card offers the chance to buy materials before being paid for the job. Likewise, a rideshare driver might need to charge gas and maintenance costs in order to earn money providing rides. On the other hand, a business debit card is a much simpler form of payment that can be useful to many small business owners. Using a business debit card enables you to forget about the possibility of making late payments or incurring debt. And even if you have serious credit problems, you’ll have no issue applying for a business debit card. Business debit cards are best for those who don’t travel and don’t need benefits like travel insurance and purchase protection. In fact, a business debit card competes much more closely with cash or checks than a credit card. But compared to cash and checks, business debit cards are much more secure and convenient. 

When to Use a Personal Credit Card Instead

Another alternative to both business credit cards and business debit cards can be a personal credit card. There’s no reason why you can’t use a personal credit card for business purchases. The main drawbacks include not having the reporting and expense tracking features and perhaps earning rewards that are less suited to business purchases. 

The Takeaway

There are many good reasons to choose either a business debit card or a business credit card, depending on your needs. When you examine the benefits and drawbacks of each, it will become clear which is the right product for you.Lantern by SoFi has credit card offers for cards that can help build your credit.
Photo credit: iStock/Chaay_Tee
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (https://www.consumer.ftc.gov/topics/credit-and-loans)The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.LCCC0422003

Frequently Asked Questions

Can a business debit card build your credit?
Can I have a business credit card and a business debit card?
Is it better to use my business checking account or credit card as a source of funds?
Does a business debit card or credit card offer fraud protection?

About the Author

Jason Steele

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.
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