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If your small business is no longer small, it may be time to consider transitioning from using a personal or business credit card to getting a corporate credit card. With a corporate credit card, business owners are protected from personal liability for purchases made on behalf of the company. These cards also come with other business-friendly benefits, including having multiple authorized users and robust expense tracking tools. But corporate cards also come with some downsides, including strict eligibility requirements and a lengthy application process. Here’s what you need to know about corporate credit cards, including how they work, when it makes sense to get one, and how to manage a corporate credit card.
What Is a Corporate Credit Card?
A corporate credit card is a type of credit card that is issued to a corporation. With the typical setup, the business entity itself is legally responsible for repaying charges made to the card. That means that should the company go under, no single individual would be responsible for any outstanding debt — the business would bear that responsibility. As a result, corporate cards are typically only issued to organizations that have high revenue, a strong track record of success, and solid business credit scores. If your business is a limited liability company (LLC), S-Corp, or C-Corp with strong credit and revenue in the millions, it may be eligible for a corporate credit card.If you qualify for a corporate credit card, you’ll be able to issue it to your employees, who can use it for authorized business expenses — such as travel or entertaining clients — without having to use their own card or cash. Corporate cards also typically offer expense tracking and reporting features, which can help simplify accounting and tax preparation, along with other perks, such as travel insurance, purchase protection, and travel rewards.
How Do Corporate Credit Cards Work?
Corporate credit cards work in a similar way to other types of credit cards. You can use the card to make purchases for your business. Your business will need to make regular payments on your corporate credit card account, and your corporate card usage and payment history will factor into your business credit score. In fact, responsible use of a corporate credit card can be a good way to build your business credit profile.You can assign an administrator to manage the credit card account and pay the bills. The account administrator can also request that employees be authorized to receive cards. The company’s name will be on the card, along with the employee's name as a designated cardholder. Like a personal credit card, the employee's signature goes on the back. With most corporate credit cards, however, employees do not have any personal liability for the charges. Depending on the issuer, a business may have to pay an annual fee for each corporate credit card issued to an employee.Recommended: Comparing Business and Personal Credit Scores
Types of Corporate Credit Cards
There are three types of corporate credit cards available, which differ based on the party or parties that are being held liable for repayment.
Individual Liability
With this type of corporate credit card, the employee is responsible for paying the credit card bill, and then filling out an expense report in order to get reimbursed by the employer. The credit card issuer checks the employee's credit before giving them a card, but it’s usually a “soft” credit credit pull that won’t negatively impact their credit score. While the use of this type of credit card won’t help an employee build personal credit, payment problems could negatively affect their personal credit profile.
Corporate Liability
The most common type of corporate credit card is the corporate liability card. With this setup, the business receives and pays the bill for all approved charges and is responsible for all debts. As a result, the issuer doesn’t perform a credit check on the owner or the employees, and the cardholder doesn’t receive or pay any bills.
Joint Liability
With this type of corporate card, both the business and the employees are responsible for the debt. The specifics of who will be liable — and when — will depend on the card issuer’s terms and the company’s preferences. With a joint liability card, any delinquencies and defaults could potentially get reported to consumer credit bureaus and hurt an owner’s or employee’s personal credit score.
Pros and Cons of Corporate Credit Cards
Corporate credit cards come with a number of advantages, which include:
Personal credit protection: With the most common type of corporate card, the account has no effect on the user’s personal credit. You and your employees won't have to undergo a credit check that could impact your personal credit score to qualify for a corporate credit card and your credit scores won’t be hurt in the event of a delinquency or a default.
Personal asset protection: Corporate cards are issued on the basis of the company’s financial strength, not the owner's personal finances. This means that if the company goes under, or should any employee use the card fraudulently, your personal finances and assets won’t be at risk.
Easy expense tracking: Corporate credit card programs typically offer businesses-friendly ways to track expenses. Employees with cards can usually file their expenses electronically, making it easy for you to see where and how they are spending company money without having to check expense reports.
Spending limits: With a corporate credit card, managers are able to set limits on the amount of money employees can spend, as well as designate categories in which they can spend. This can help you protect against personal or fraudulent spending.
There are also some downsides to a corporate card, which include:
Only available for larger companies: To qualify for a corporate credit card, a business must be incorporated, which excludes sole proprietorships. In addition, many corporate card issuers want to see at least $2 million in annual revenues.
Lengthy application process: Getting a corporate credit card is usually much more involved than getting a personal credit card, or even a business credit card. Issuers typically want to review a company’s financial statements, legal documents, and income projections. The application may even include a financial audit.
Minimum number of cardholders: Some corporate card issuers require that eligible corporations sign up for a minimum number of employee cards, which could be as high as 15, and there may be an annual fee for each card issued.
High spending requirement: In some cases, corporate card issuers will want you to guarantee a certain level of spending, such as $250,000 or more each year.
Corporate Credit Card Pros
Corporate Credit Card Cons
Protects your personal credit
Must be incorporated
No personal liability
Lengthy application process
Easy expense tracking
Minimum number of authorized users
Allows you to set limits on employee spending
High spending requirement
How to Qualify for a Corporate Credit Card
Corporate credit card issuers typically have a strict list of qualification requirements. These may include:
Registered as an S Corp, C Corp, or LLC
A business (rather than home) address
An established business credit score
At least $2 million in annual revenues
Being in business for at least 12 months
At least 15 authorized card users
Estimated charges of $250,000 or more each year
How to Get a Corporate Credit Card: Applying for a Corporate Credit Card
To find out whether your business will qualify for a corporate credit card, you’ll likely need to contact a corporate credit card issuer directly. Unlike personal credit cards, you typically can’t apply for a corporate credit card online. The application process can be rigorous and you will likely need to supply documentation that proves that your business’s income and expenses are high enough to justify taking out a corporate line of credit. For example, corporate credit card issuers may ask for:
Recent audited financial statements
Information about your company's structure
Federal tax ID
Recent business tax returns
Business's credit history and credit score
Contact information for company’s representative (such as president or treasurer)
Once you’re approved and receive your corporate credit card(s), it’s a good idea to set up some systems to manage the account. Here are some ideas.
Establish One or More Account Administrators
These are the company officials who will be responsible for managing the account. Their duties will include designating authorized employee cardholders, reviewing statements, and paying the bills.
Create Card Holder Policies
These policies can include when it’s acceptable for employees to use their cards and for what kinds of purchases. They can also specify the need to receive advance authorization for certain types of purchases or purchases above a certain dollar amount. You can also prohibit personal use of the corporate card and require users to submit receipts and expense reports.
Monitor and Manage Expenses
It can be a good idea to look at your corporate card statements each month and review each cardholder's credit card charges. Corporate card tracking tools can make it easy to quickly review expenses by category, monitor employee spending, and make sure you are staying within budget.
When to Use a Personal or Small Business Credit Card Instead
Many freelancers and small business owners won’t qualify for a corporate credit card. If you have a side hustle with minimal monthly expenses, your best might be to simply use a personal credit card for your business expenses. If you run a small business with revenue of less than two million per year, you’ll probably want a business credit card or business line of credit.Personal and small business credit cards come with many of the same advantages of a corporate card, including having a secure and convenient method of payment, the ability to finance purchases, and cardmember perks like points, cash back, purchase protection, and travel insurance. The best business credit cards will also offer high-level expense tracking and reporting features. Keep in mind, though, that business credit cards typically require a personal guarantee, which means that you will be personally liable for any charges made on the account. Recommended: Your Guide to Understanding Business Lines of Credit
The Takeaway
Corporate cards protect a business owner’s personal liability and make it easier for employers and employees to manage expenses. However, these cards are only available to businesses that are incorporated, bring in millions in revenue, and have large numbers of employees. If you don’t fit the criteria for a corporate card, or you simply want to explore other credit options for your business, Lantern by SoFi can help. With our online loan comparison tool, you can quickly research credit cards with lowest interest rates and fees and find the best rewards for your business.
Frequently Asked Questions
Do corporate credit cards affect personal credit?
Does having a corporate credit card help your credit?
Can I add an authorized user to a corporate credit card?
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About the Author
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.
