Business Credit Cards and How it Works

Business Credit Cards: What They Are & How They Work

A business credit card is a financial tool designed specifically for business use rather than personal expenses. It helps businesses manage cash flow, separate business and personal finances, and often comes with perks that align with business needs (e.g., rewards for office supplies, travel, etc.).

 Key Features

  1. Credit Limit
    The amount you can borrow on the card. This is usually based on your business revenue, creditworthiness, and time in business.

  2. APR (Annual Percentage Rate)
    Interest charged if the balance isn't paid in full by the due date.

  3. Rewards & Perks
    Cashback, travel points, or discounts for certain categories like gas, office supplies, or dining.

  4. Employee Cards
    You can issue cards to employees with customizable spending limits.

  5. Expense Tracking
    Helps monitor and categorize business spending (often integrates with accounting tools like QuickBooks or Xero).

 How It Works

  1. Application
    You (the business owner) apply using your business info (like EIN) and often your personal credit info as well. Approval depends on both.

  2. Usage

    • Use the card for business expenses (supplies, travel, software, etc.).

    • Earn rewards and build credit for your business.

  3. Billing Cycle

    • You get a monthly statement of your charges.

    • You can pay the full balance or a minimum payment.

    • Interest is charged on carried balances.

  4. Repayment
    Pay on time to avoid interest and maintain good credit. Some cards offer a grace period where no interest is charged if the full balance is paid.

  5. Business Credit Building
    Responsible usage helps build your business credit score, which is separate from your personal credit and is crucial for securing loans, leases, etc.

 Benefits

  • Keeps personal and business expenses separate (good for taxes & legal protection)

  • Access to working capital

  • Builds business credit

  • Employee spending controls

  • Rewards & expense tracking

 Things to Watch Out For

  • Personal Guarantee: Many cards require you to personally guarantee the debt, meaning you're personally responsible if your business can't pay.

  • High APRs: Carrying a balance can get expensive.

  • Overspending Risk: Easy credit access can lead to poor financial discipline.

 

Tags:
Previous Post Next Post