Not all credit cards were created for the purpose of individual customer purchases. While primarily a consumer-oriented product, the advantages of using credit cards for business soon emerged to the point where a whole new market was created in which the card associations like Visa and MasterCard saw the potential of developing a line of business credit cards.
There are some distinct differences between consumer credit cards and business credit cards that are important to know before you apply for one:
Impact on Credit History
Business credit cards obviously impact your business credit but they can affect your personal credit, as well. Since you, as the business owner, are most likely the signer on the business credit card account, you are essentially signing a personal guarantee that you will cover the debt you created with that card. Small business credit card issuers tend to report your usage and payment behavior to both the consumer and the commercial credit bureaus.
Business credit cards offer different types of rewards that are directed toward enticing the business to believe they can save on many of the products and services that are business-related. While most businesses are gaining a great savings on supplies that are needed in the business, the deeper discounts are offered on credit cards used for bulk supply purchasing. These discounts might include discounts on office supplies, Wi-Fi service, and phone bills as well as various types of services. There’s also the promise of travel-related awards that can be earned and then turned into a great vacation.
Limits, Rates, and Fees
While consumer credit cards have some protection from interest rate increases, including receiving a notice in advance of any increase, business credit card holders don’t get that same treatment. A business credit card issuer can raise the annual percentage rate (APR) any time they want.
When it comes to the percentages charged for the late fees, there is no limit for the interest that can be charge to a business credit card. They are basically unlimited, so the expense of this type of credit card can add up quickly.
On the plus side, you will most likely get a higher credit limit than you would on a personal credit card because issuers recognize that expenditures and types of purchases tend to be a higher dollar amount with a business credit card than for a consumer.
Payment Window and Terms
Business credit cared holders often have a smaller window of time to pay their bill and may not show the same due date from month to month. This means there is a need to pay more attention to the bill when it comes and staying on top of payments. This would be a time when it helps to receive your statement online so you get a notification in your inbox that the bill is there and ready to be paid.
Payments tend to be applied differently by the issuer of a business credit card with the amount that is applied to the lowest interest rate balance while the higher priced portion collects even more finance charges. That’s why carrying a balance on a business credit card is an expensive proposition.
Accounting Purposes and Expense Management
Since business credit card issuers realize that you are using the card for business expenses, they often provide a helpful feature in the form of an accounting report typically at the end of the year. In this report the issuer will break down your business credit card expenditures for the year by category to help you quickly tabulate those write-offs you need for tax purposes. For your business, it can also be useful to see where all your money has been consumed so you can track how well you have stuck to your business budget.
Reasons to Get a Business Credit Card
Business credit cards are a good choice for anyone trying to establish their business credit in the first place, or for someone looking for a higher credit limit to cover business expenses and get by when cash flow is lower. Depending on the type of business structure you have, it may be better to get a business card, especially if you are incorporated. Additionally, it is a faster and more convenient way to get some type of credit. However, as a sole proprietor, you may want to stick with a consumer credit card for the time being to avoid some of the fees and rate hikes placed on a business credit card.
Sometimes the CEO, CFO, or the CMO will have their name be the name on the business credit card so that it will appear as a personal card.
Be sure to weigh all the differences before you make a decision on which type of credit card to get. Most importantly, make sure you are fiscally knowledgeable and responsible to have a credit card so you don't adversely impact the reputation of your business.
BluePay is pleased to bring you this valuable information from our partner, Due, makers of a free digital wallet that allows users to easily make and accept payments online.