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What Is a Business Credit Card and How Does It Work?

What Is a Business Credit Card and How Does It Work?
Lauren Ward
Lauren WardUpdated July 22, 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.
Whether you own your own small business or you’re a busy freelancer, you may be wondering if you should get a business credit card, and exactly how this type of credit card works. A business credit card is a credit card designed to cover business expenses and offers unique benefits suited to businesses. Having a business card enables you to separate business spending from personal spending, increases your business’s purchasing power, and helps build business credit. However, business credit cards also have a few downsides (such as potentially higher fees and fewer protections). Read on for everything you need to know about business credit cards, from how they work to how to get one. 

What Is a Business Credit Card?   

A business credit card is a credit card intended for business rather than personal use. Business cards are available to companies of all sizes and revenues and enable business owners (and sometimes employees) to pay for company expenses, such as office supplies and business travel. What makes business cards different from personal credit cards is that the credit line is typically higher, and rewards are usually more geared toward business use. Another key difference is that personal card accounts are only reported to the consumer credit bureaus (Experian, Equifax, and TransUnion), whereas business accounts may be reported to commercial credit bureaus (Experian or Dun & Bradstreet), as well as the consumer bureaus. Because of this, a business credit card can help you build a business credit profile, which may help you qualify for other types of business financing in the future.Recommended: Choosing Between a Business Line of Credit or a Business Credit Card 

How Does a Business Credit Card Work?

Business cards work in a similar way to personal cards in that you have a maximum credit line and can charge expenses to the account up to that amount. As you pay off your balance, your available credit is replenished. If you carry a balance from one month to the next, you will pay interest on that balance.Depending on the business credit card, you may receive certain rewards from your spending, such as travel points or cash back. Many cards also offer business-centric tools to track spending in various categories. Often, expense information can be downloaded and easily imported into your business accounting software. In addition, business cards generally come with employee cards that may let you set individualized spending limits.

How to Use a Business Credit Card

You can use a business credit card the same way as a personal credit card, but these cards are expected to be used only for business-related expenses. This means you can use them for things like:
  • Office supplies
  • Advertising
  • Business meals
  • Utilities
  • Travel expenses
  • Inventory

How to Qualify for a Business Credit Card

Anyone who operates a business can apply for a business credit card. This includes any type of business structure, including a sole proprietorship, partnership, corporation, or limited liability company (LLC). And, you don’t need to have an existing business credit history before you can apply. Credit card issuers will look at your personal credit history and credit scores. If you do have a business credit history, they will likely look at both your personal and business credit.

Benefits of Business Credit Cards

There are many advantages of a business credit card, especially if your business is new. For example, a business credit card can help you:

Separate Business and Personal Spending

One of the biggest benefits of a business credit card is that it allows you to keep your personal and business spending separate, which can dramatically simplify your life come tax time. 

Build Business Credit

If you’re a new business, building business credit is key if you ever want to take out a business loan in the future. Even if you have to sign a personal guarantee, opening a business credit card in your company’s name will help you establish or build your company’s credit profile. Just be sure you make your payments on time and keep your credit utilization ratio (how much of your available credit you are using) low. Understanding your business credit score and how it works can also be helpful.

Get a Higher Credit Limit

One key difference between a personal and business credit card is the credit limit you can get with each. Business credit cards typically have higher credit limits than personal credit cards because the issuer considers both your income and the business’s revenue when determining the credit limit. Issuers also consider both business and personal credit scores. A higher limit could be useful if your business has steep operating costs, such as high inventory expenses each month.

Get Business-Related Perks

The best business credit cards come with bonus rewards for business-related spending, such as phone bills, online advertising, or office supplies. Business credit cards also typically offer tools that can help you better manage your company's finances, such as integration with your accounting software and year-end itemized spending reports.

Drawbacks of Business Credit Cards

Business credit cards also have some drawbacks. These include:

May Come with an Annual Fee

Many business credit cards will charge an annual fee. The amount of the fee will vary depending on the creditor, but it can be a good idea to shop around and compare credit cards before you apply, looking at both interest rates and fees. 

Fewer Protections than Personal Credit Cards

The CARD Act of 2009 gave a number of protections for personal credit cards, including:
  • Limitations on interest rate hikes
  • Prevention of double-cycle billing
  • Limitations on fees
These protections generally don’t apply to business credit cards, which means a business card’s annual percentage rate (APR) could potentially change overnight and/or you could get hit with a very high fee for a late payment. However, as a courtesy, card issuers today generally extend many consumer protections for personal credit cards to small business credit cards. 

Your Personal Credit May Be Affected

When you apply for a business credit card, the application will probably show up as an inquiry on your personal credit report, which can cost you a few points on your credit scores for a short time. In addition, some business card issuers will report your account payment history to both consumer and commercial bureaus. If that’s the case, your business credit card can affect your personal credit score.

May Have to Sign a Personal Guarantee

Nearly all business credit cards will require the applicant to personally guarantee the debt on the card. The guarantee means that you are personally responsible for repaying that debt even if your business fails. A personal guarantee provides some assurance to the credit card company that charges on the card will be paid regardless of what happens with the business. However, if your business does fail, your personal assets could be at risk.

Applying for a Business Credit Card

The application process for a business card varies somewhat depending on the issuer, but you will typically need to supply the following information:
  1. Personal information (including your name, address, Social Security number, and possibly, household income)
  2. Company information (company name,  address, and EIN, if you have one)
  3. Business structure (i.e., LLC, sole proprietorship, corporation, partnership)
  4. Age of business
  5. Type of business
  6. Monthly business revenue 
  7. Monthly business expenses

Business Credit Card Rewards 

Many business credit cards come with spending perks to help them stand out from their competitors. Common business credit card rewards include:
  • Cash back Cash-back cards pay you back a certain percentage of every purchase. Some will offer a flat rate for all spending (such as 1% to 2% back), plus a higher percentage for spending in certain business-related categories.
  • Points Points cards give you points or miles for each dollar you spend. In some cases, you may get bonus points for spending in certain categories.These rewards can typically be redeemed for travel, such as airline tickets and hotel stays. However, you may have other options, such as merchandise or cash back.
  • Travel perks Some business cards will offer special status and upgrades for business travelers, such as complimentary TSA Precheck, entry into airport lounges, travel insurance, and deals on car rentals.

Restrictions That May Apply to a Business Credit Card

Business cards are meant for business spending, and many issuers will stipulate that the card should not be used for personal transactions. If you do use it for personal expenses, your account could be closed. Another reason to avoid using business cards for personal expenses is that business cards can have higher interest rates and fees and generally come with fewer consumer protections.

When to Use a Personal Credit Card Instead

There are some situations where it can make sense to use a personal credit card as your “business card.” For example using a personal card for your business-related spending might make sense if you:
  • are a freelancer
  • are just starting a business, 
  • own a very small business
  • have a side gig
  • don’t have a lot of charging volume
Personal credit cards typically come with more consumer protections, lower fees, and longer 0% APR introductory rates than business cards. However, if you have employees, are planning to grow your business, or may need access to a higher business line of credit or small business loan in the future, you will likely be better off with a business credit card. 

The Takeaway

Business credit cards can make it easier to manage business expenses and are available to all business structures, including sole proprietors. These cards work just like personal credit cards except that they typically offer higher spending limits, help you build business credit, and come with business-friendly features, like free cards for employees, bookkeeping tools, and bonus rewards for business-related spending. If you’re curious about what type of credit card your company might qualify for, Lantern by SoFi can help. With our easy online comparison tool, you can research the lowest interest rates and fees, and find the best rewards for your business.  

Frequently Asked Questions

Can you get a business credit card with no credit check?
Can credit card fees be deducted for business taxes?
Do business credit cards build credit?
Do business credit cards report payment history to credit bureaus?
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Photo credit: iStock/SouthWorks
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About the Author

Lauren Ward

Lauren Ward

Lauren Ward is a personal finance expert with nearly a decade of experience writing online content. Her work has appeared on websites such as MSN, Time, and Bankrate. Lauren writes on a variety of personal finance topics for SoFi, including credit and banking.
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