Why To Get a Business Credit Card?

Nov 20, 2023 By Triston Martin

A business credit card can be helpful in many ways, regardless of whether your company is a burgeoning startup or a well-established enterprise. In addition to the potential for increased credit limits over those available with consumer cards, having a business credit card not tied to personal accounts might be helpful when it comes time to file taxes. Consider these guidelines as you search for the most suitable business credit card.

Can You Explain How Business Credit Cards Function?

Though corporate credit cards may appear identical to consumer cards in perks and reward structures, many provide more significant spending limits and enhanced incentives for business-specific areas. It is possible to keep tabs on how much is being spent in each department or by an individual worker with the help of the tools and services offered by corporate credit cards. Expense data from most business cards can be downloaded and imported into your company's accounting software.

Applying for a business credit card does not necessitate an EIN for your company. The Employer Identification Number (EIN) is akin to a person's Social Security Number (SSN) in that it serves as identification for tax purposes. In the absence of a company's credit history, lenders will typically go to the owner's personal Social Security number and credit profile to assess the company's creditworthiness. A business's EIN, if it has one, can be included on a business card application.

An individual's credit may be required to secure a company credit card. As the business owner, this means that you are personally liable for repaying the amount charged. Even if you use a corporate credit card to make purchases, late or missed payments will still reflect negatively on your credit reports and may harm your credit score.

However, while the CARD Act of 2009 affords customers several protections—for example, requiring issuers to provide users advance notice before increasing an account's APR—the same law does not apply to business cards.

Dig Deeper

There are many advantages to using a credit card for business transactions. A company credit card appears to function similarly to a personal credit card, but there are some key differences. The credit limit for a corporate account is usually more significant than an individual's.

This implies you can put more money on your company's credit card and use it to make purchases that will help it expand. In addition, it can help a company establish a credit profile, which can be helpful when applying for loans or venture capital to grow. If you keep business funds isolated from your own, you'll have a much easier time keeping accurate books.

An Increase in Credit Limits

It only makes sense for a business's credit limit to be established using the same criteria used by individual card issuers, such as the company's revenue and the owner's credit history and score. Establishing corporate credit as soon as possible paves the way for more extensive future credit lines and loan amounts.

This is especially advantageous for smaller companies in light of their tighter budgets. Using a business credit card simplifies making significant expenditures like stocking up on supplies, paying for shipping, or covering trip costs. If your credit card has a greater limit, you can use it for more purchases without worrying about going over your limit during any billing cycle. This keeps your credit usage (the percentage of your debt that is used each month) from rising to dangerous levels.

For brevity's sake, your company will appear more credible if its credit balance decreases at the end of each billing cycle. When business owners have the financial flexibility to make more significant purchases, they rely less on a steady stream of bank loans.

Preparing a Company's Credit

For what purpose might a company's credit score be valid? Companies, like people, have financial profiles that include a history of spending and revenue patterns as the company grows and changes.

With time and responsible use of a business credit card, your company's creditworthiness might rise, making it more attractive to other lenders and investors. When a company's payment history is spotless and its credit score is high, it can enjoy the same favorable interest rates as an individual.

Before applying for a new business credit card, it's essential to consider the fees associated with opening the firm and the ongoing expenses you'll incur, as well as the card's points, bonuses, APR, and annual fees.

Related Articles