How do Small Business Credit Cards Work?

Are you considering getting small business credit cards for your small business but you’re not sure what separates it from your existing personal cards? We’ll break down some of the main differences between the two cards and answer some frequently asked questions about how they work and how they affect your credit score.

What is a Small Business Credit Card?

Just like a personal credit card, a small business credit card allows business owners to borrow money to make purchases and to withdraw cash. Small business credit cards have a limit and an interest rate just like traditional personal cards do, and if the bill isn’t paid in full and on time, then the interest accrues.

How is it Different from a Corporate Card?

While corporate cards are also targeted towards those who work in business, they’re typically given to employees. Corporate cards must be used by employees for business-related expenses and employees must be able to justify every purchase made with the card. The card often features the employee’s name as well as the company’s.

Does your Business Credit Card activity affect your Personal Credit Score?

The unfortunate answer is, yes, and usually only in a negative way. Most business credit cards require a personal guarantee (essentially  linking your business to your personal score)

If you make all of your payments on time with no carry over or delinquency, your personal credit score is not affected. If, on the other hand, you’re irresponsible with your small business credit card it can tank your personal credit score.

It is possible (though not very easy) to get a small business card that does not affect your personal score. You’ll have to do some digging though because cards that only report to commercial credit bureaus/that don’t report monthly payments at all often are not advertised.

Is it Worth getting a Small Business Card?

If you don’t mind the fact that your card will be tied to your personal credit score, then yes it’s definitely worth at least looking into. Small business cards help you build your business credit. Unlike your personal score, you’ll most likely need a solid separate business credit history in order to get a business loan from a bank.

Having small business credit cards that you charge all your business expenses to also makes it easier to manage your expenses (especially come tax time). If you charge a lot to your card (and pay it off on time), you’re also likely to reap in some serious card perks and rewards. If your business requires you to travel, it’s definitely worth looking into a card that offers points towards free flights or reduced car rental fees/saving money on gas.

Another Option?

If you’re still not sold on getting a card specifically for you business, you can always apply for another credit card in your own name but keep is specifically for business expenses. This is only recommended if you’re the only one with access to the card and if you know you’ll be able to pay everything back on time and in full. By going this route, you still benefit from any credit card perks/rewards without having to go through the hassle of applying for a card that’s just for your business.