Is a business credit card the right move for your business? The proper use of a credit card has the same rules for business or personal use. If managed properly, credit cards used for business purposes can benefit small businesses. 

Benefits of Business Credit Cards

There are two reasons to put a credit card in the name of your business:

  1. To take advantage of credit card benefits only available to businesses – some companies reward businesses with exclusive benefits on their business credit cards.
  2. Building business credit – you’ll have to decide if it is beneficial for your business to have its own credit score. Because most small businesses are closely held, the owner’s personal credit score may be just as important, if not more important, than the business credit score.

All major credit card companies market many business and personal credit cards, each with its own perks. Some credit cards branded as “business cards” offer benefits and rewards on certain purchases, usually ones tied to the company providing the card. 

For instance, Amazon offers cards that give Amazon-specific rewards; a business that does most of its purchasing through the online retailer may gain significant savings this way. Other cards provide monthly premium rewards in one or two top purchase categories.

Ease of use, wide acceptability, cash-back options, travel rewards, theft protection, and purchase protection are just some of the incentives. It’s important to compare all the cards you qualify for – business or personal – to find the one that best suits your needs. 

Do I Need a Credit Card in the Name of My Business?

You can use a credit card in the business’s name or a personal credit card in the owner’s name for business purposes. The key is always to separate business and personal expenses. It is not mandatory, but it is good business practice. Keeping your business and personal purchases separate allows for easier tracking of business expenses, which means keeping track of tax records and management is more manageable. 

There is nothing to say that you can’t use a personal credit card for business purposes. Just ensure the card is only for business purposes and the company makes payments.

Most bookkeeping software products allow credit cards and bank accounts to be linked directly to the software and have the transactions downloaded into the program for proper classification.

If the linked card is for personal and business expenses, you’ll have to separate the purchases, adding unnecessary time and difficulty to your bookkeeping. The process is simpler if the linked card is only for business transactions.

Risks of Credit Cards for a Business

The benefits mentioned above on credit cards typically result in a 2 – 5% return on expenditures made on the card. Most credit cards, though, carry an interest rate of up to 18 – 20% on unpaid balances. Thus, if you don’t pay the card off each month, the interest would render the benefits worthless.

In certain circumstances, an owner can justify some business debt. However, credit card debt does not help a business owner maintain sound financial management. Financing a business with a credit card that results in carrying a balance, as well as making only the minimum monthly payment on a card, can put a business owner in a risky financial position. 

Additionally, there are significant fees if payments are late, and you could damage your credit score. Many credit cards also have annual fees added on top of payments. Business owners should weigh all these factors against the benefits.

What Is the Best Choice?

Business credit cards can give small business owners many benefits. Business credit cards can help reduce costs and grow a business when used responsibly. However, the best choice for a business owner will always depend on the business’s specific situation.