Everything You Need to Know about Business Credit Cards

Editor's Note: Take a look at our featured best practice, Working Capital Management Strategy (84-slide PowerPoint presentation). Working Capital Management (WCM) refers to the administration of an organization's short-term assets and liabilities to ensure its ongoing operational efficiency and financial stability. Effective WCM is crucial for maintaining liquidity, optimizing cash flow, and ensuring the organization [read more]

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Most people use a personal credit card for their daily purchases. However, not all entrepreneurs immediately think of using credit cards to fund their small business?

Business owners need to become aware that applying for a business credit card provides many benefits. Business credit cards can be used to cover certain business-related purchases, as well as provide extra funding for operations.

Simply put, a business credit card is a convenient way to immediately boost a business’s purchasing power.

If this sounds interesting to you, then read on. Here’s everything you need to know about business credit cards:

A Closer Look at a Business Credit Card

Business credit cards give entrepreneurs immediate access to a revolving line of credit. This can then help a small business have better cash flow and help ease small business invoicing.

Just like a personal credit card, business credit cards have a set credit limit. Banks that issue business credit cards also charge interest when the account holder fails to fully settle the balance during each billing cycle.

If a business has been operating for a few years already and has a good credit score, then the business owner can be given a card with a higher spending limit than a personal credit card. However, for newer businesses looking to start building good credit, lower limits may be initially assigned, and the business owner’s qualifications may also need to be checked thoroughly.

Entrepreneurs can apply for a business credit card through their local bank. However, it’s good to take note that there are many different types of business credit cards offered by different banks, which is why it’s best to research them and know about the differences. Each bank may also have slightly different application processes, qualification criteria, and requirements.

There are many reasons as to why a business owner would want to use a business credit card. One of them is that the business may need only a small amount. If less than $50,000 is needed, then it may be best to use a card. This is because most loans have higher loan amounts, while alternative lenders that provide smaller loans like $500 to $2000 and charge higher interest rates. Also, the business owner can assign the card to someone else who can be responsible for purchases.

Some business owners also turn to business credit cards when they can’t qualify for a bank loan. This is because bank loans usually have more stringent processes. Traditional lenders also tend to ask for more documents for business loan applications as compared to when an entrepreneur is applying for a business credit card.

Lastly, many business owners simply turn to business credit cards due to convenience. It’s a good way to finance short-term needs.

The Advantages of Having a Business Credit Card

Though there are many advantages to having a business credit card, the main benefit is that it maximizes a business’s available credit and boosts cash flow.

Now, let’s go and take a closer look at some of the other advantages of business credit cards:

They Provide a Financial Cushion

Personal credit cards can serve as backup funding for unexpected expenses. Business credit cards are the same. A business card can be used when there are too many outstanding accounts receivables or during seasons when sales are low. A business credit card is a good way to maintain operations during challenging times.

They Provide Online Convenience

Any type of credit card can make an online transaction much smoother. Business owners may need to purchase office supplies online. They may also do business with vendors, contractors, or suppliers via the internet. During these situations, a business credit card becomes handy.

Having a business credit card becomes especially helpful when there is a need to immediately purchase a product before stocks run out. Entrepreneurs can also use it to instantly replenish their supplies. They can just place an order through a vendor’s website. They can also opt for automatic and schedule purchases.

Most Come with Rewards and Perks

Similar to personal credit cards, most business credit cards also provide different types of incentives. Points can be redeemed in exchange for gift certificates, flights, hotel accommodations, or even entertainment packages. Business owners can also use their business credit card to purchase office equipment and get discounts. Certain types of cards also offer cashback incentives.

The Disadvantages of Having a Business Credit Card

Now that you know some of the advantages to having a business credit card, you may think that having one is the best choice. However, before you gather your requirements and submit an application, you must also consider the potential disadvantages of having a business credit card.

Here are some of them:

Balances Can Easily Accumulate

As with any other type of credit card, it’s important to pay and settle the balance on time and in full.  Even though an item can be bought with zero interest, an interest fee can still be charged every succeeding month after the end of the no-interest period. What this means is that the debt can quickly pile up due to late charges and fees.

Although card holders can earn great rewards from buying items with high prices, such as equipment or gadgets, it’s always better to immediately settle the balance. Otherwise, card holders may end up facing difficulty in repaying them–which then only leads to even more late fees.

It’s Easy to Misuse a Credit Card

Business owners also have to remember that it’s quite easy to be tempted to misuse a credit card. This is why they need to be careful as to whom they assign the card.

They also need to be specific as to the purpose of the card. Business owners need to clearly define when it can be used and what items may be bought using it.

If the card is assigned to an employee, then business owners must always check the monthly bills so you can make sure that all the expenses are accounted for. They can also opt for smaller credit limits. Another important thing to note is that credit card information must always be protected, or else the card holder will be vulnerable to potential identity theft.

Key Takeaways

Though most business owners are aware of personal credit cards, what they also need to know is that they can also apply for a business credit card. Since business credit cards provide immediate access to a revolving line of credit, they can be used for business-related purchases and help boost cash flow.

Aside from providing a financial cushion, business credit cards also help make online purchases much easier, and they also come with many rewards and incentives. However, business owners need to be careful as balances can easily accumulate when they aren’t settled on time and in full. They can also be easily misused and can make the card holder vulnerable to potential identity theft.

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