9 Most Important Things to Know About Getting a Business Credit Card

In this article, you’ll learn the nine most important things to know about getting a business credit card. By the time you’re finished reading, you will know how a business credit card can help your business.

Thinking about getting a business credit card?

A business credit card is one of the best ways to finance small business purchases.

But as you surely know, there are potential pitfalls with getting any type of credit card – including a business credit card.

Here are the nine most important things to know about getting a business credit card:

1. You Don’t Need to Have a Corporation to Get a Business Credit Card

There’s a widespread misconception that you need to have a corporation to get a business credit card, but this isn’t the case in reality. If you have a partnership, LLC, or sole proprietorship, you still have eligibility for a business credit card.

2. Your Personal Credit Could Impact Your Chances of Approval

While business credit card applications are largely evaluated based on the business credit score of your business, your personal credit score could also impact your chances of approval. A credit card issuer is more likely to factor in your personal credit history if you have a startup, as the lack of a business credit history makes you a greater risk for the company.

To mitigate that risk, the issuer may ask you to provide a personal guarantee as a condition of approval. If you are asked to do this, you should carefully evaluate the pros and cons, as a business setback could lead to a personal setback. You may want to talk to a Certified Public Accountant (CPA).

3. You Might Be Able to Get an Introductory 0% Interest Rate Period

For a new business owner, it’s sometimes difficult – or impossible – to find affordable financing for small business purchases. So, if you don’t have a high cash balance in your business bank account, you might feel like there’s no good way to grow your business in the early days.

Luckily, there are a number of small business cards with introductory 0% interest periods. The introductory 0% interest periods are usually a year or less for business credit cards, which doesn’t compare favorably to the consumer card offers with 0% periods for 15+ months. With that being said, you can save a lot of money on interest if you get this type of business credit card at a time when you need to make a few big business purchases.

4. You Can Get Rewards

In addition to introductory 0% interest periods, business credit cards offer rewards programs to cardholders, including cash back, points, travel rewards, and sign-up bonuses. If you’ve ever used a personal credit card, you’ve probably received a few of these benefits.

So, how do you decide which benefits to prioritize?

That depends on your business.

In many cases, credit card points are based on spending in specific categories. The American Express Business Gold Card, for example, offers cardholders 4X points on airfare purchases directly from airlines and US purchases on online, TV and radio advertising, computer hardware, software and cloud systems from select technology providers, gas stations, restaurants, and shipping. For all other categories, cardholders earn 1X points on their purchases. So, this card would make a lot of sense for a small business owner who expects 80% of their business spending to take place in the 4X categories… but not for one who spends heavily outside of those categories.

The travel rewards could be an important piece of the puzzle, as well. In many cases, credit card points can be redeemed for excellent deals on flights… particularly for business class seats. The pandemic obliterated business travel, but as we move into a post-COVID world, some small business owners are going to increase their number of out-of-state business meetings towards pre-pandemic levels. But others aren’t going to fly much. Your position on that spectrum impacts the importance of travel rewards to you.

The sign-up bonus probably isn’t going to make-or-break your small business, but it’s still a nice benefit for new cardholders… if they qualify for the bonus. Let’s go back to the American Express Business Gold Card – the sign-up bonus is 70,000 bonus points after you “spend $10,000 on eligible purchases with the Business Gold Card within the first 3 months of Card Membership.” That sounds great, but what do you do if you don’t plan to spend $10,000 in the first three months of membership? You might be able to pull forward certain purchases, but you want to be careful with that strategy, as you could put your business at risk. So, the sign-up bonus should only be considered as a benefit if you expect to naturally spend the necessary amount – or something close to that amount.

The minimum spending requirement to qualify for the sign-up bonus varies depending on the business credit card, however. The Ink Business Preferred Credit Card, for example, offers 100,000 Chase Ultimate Rewards points to new cardholders, but only if they “spend $15,000 in the first three months from account opening.” So, you may want to shop around for a lower spending requirement if your first choice has one that’s too high for your small business.

5. The Annual Fee Has to Be Evaluated

The annual fee on a business credit card can be as low as $0 (no annual fee) or $500+ for some credit cards. As you may have guessed, the higher-end cards are typically the ones with the $500+ fees. There are also some credit card companies that waive the annual fee for the first year, but charge you in subsequent years.

How do you decide if an annual fee is worth it?

You have to figure out how much of a financial benefit you expect the card to provide for your small business each year – you may want to primarily base this number on long-term benefits, as introductory benefits are a one-time deal.

Say you expect to spend $20,000 per year on the credit card, and that is going to earn you around 30,000 points based on your categories. The next step is to attach a dollar value to those points – this could be cashback value (easier to calculate) or travel benefits (harder to calculate). But in any case, you should assign a dollar value to your points. In this example, we’ll place the value of the 30,000 points at one penny per point, so the points are worth $300.

So… only get the card if the annual fee is $300 or less?

Not exactly. While you might want to pass on the card if the annual fee is two or three times the expected long-term financial benefits, here’s when paying a little more might be worth it:

• The introductory period benefits are very attractive.
• You have a growing business and expect to spend more money on business needs in future years.
• You are trying to build your business credit – more on that in a bit.

6. The Annual Percentage Rate (APR) May Be High After a 0% Introductory APR Period

As stated earlier, you may be able to find a credit card with a 0% intro APR period. But after that period, the APR can increase by a lot – the average business credit card APR is 17.30%. So, you have to adjust to the new conditions after the 0% intro period is over… or you could be saddled with high credit card payments for the foreseeable future.

You can try to shop around for a business credit card with a low APR after the intro period, but you’re unlikely to find one with a reasonable rate. With that in mind, you should make your best effort to pay your balance in full whenever you get a credit card bill.

7. You May Be Able to Get a Higher Credit Limit on a Business Credit Card Than a Personal Credit Card

In many cases, business credit cards have higher credit limits than personal credit cards, as business revenue is often higher than personal income.

You might not be able to find out the maximum credit limit for a business credit card before submitting your application, as the spending limit can vary a lot based on the characteristics of your small business. But here are five of the best high-limit business credit cards of March 2022.

8. You Should Separate Your Business Expenses and Personal Expenses

Here’s an all-too-common scenario for small business owners: they want to buy a personal item and reach for a credit card. Their hand touches a business credit card, and they think, “what’s the harm in using this?”

Here’s the thing: it’s not the end of the world if you use your business credit card to buy a few personal items. But your accountant is going to have more work during tax season and might charge you a premium if you mix your business finances and personal finances on a regular basis. In addition, you are going to have a harder time sorting everything out with the IRS if you ever get audited.

You should definitely separate your business and personal expenses, as the slight inconvenience of always using the right credit card can save you a significant amount of time and money down the road.           

9. A Business Credit Card Could Help You Build Business Credit

For new small business owners, a business credit card provides an excellent opportunity to build business credit… but only if the card is used responsibly. By paying your credit card bill on time and keeping a low credit utilization ratio, you show lenders that you can handle debt.

To see this benefit, you have to get a small business credit card that reports to the business credit bureaus, such as Dun & Bradstreet, Experian, and Equifax.

The Bottom Line

With a business credit card, you can improve your cash flow position, build your business credit, and take advantage of several perks – some short-term and some long-term. But it’s important to do your due diligence before applying for a credit card to get the best business credit card for your small business.

After you get approval, the key is to strategically use the credit card. By doing this, you can make the most of the benefits, and at the same time, avoid the potential pitfalls.