Do you really need a business credit card?
by December 1, 2023
Please note: This blog was originally published in 2018. It’s since been updated for accuracy and comprehensiveness.
If you’re a small business owner, you may be on the fence about applying for a business credit card. Is it the right time? Do you really need one? The short answer to both of these questions is: yes. There are lots of reasons to apply for a business credit card—and lots of reasons to do it sooner rather than later.
Read on as we take a look at the benefits of having a business credit card, and explore how to get one, even if you’re just starting out.
Use it to build credit
If your business is still young, it can be difficult to apply for loans or other forms of financing. Online lenders and banks want to see a financial history that indicates you’ll be likely to repay any money borrowed, and when you have no credit history it’s a challenge to prove you’re trustworthy.
Applying for a credit card is easier—credit card issuers will look at your own personal credit score if your business doesn’t have credit yet—and using the card responsibly allows you to build credit in your business’s name so that when you’re ready to apply for other forms of financing you have a track record of repayment and conscientious financial behavior.
Use it as a substitute for a loan
If you’re not able to qualify for a loan just yet, having a credit card on hand to make larger purchases is vital. As a new company, you might not have lots of cash on-hand.
When you get an unexpectedly large order and need to pick up additional supplies to fulfill it or an important piece of equipment breaks down and requires costly repairs, you must have a way to cover these costs.
A credit card is essentially a revolving loan, and having one on hand allows you to deal with larger expenses as they arise and still have a month to find the cash to finance the purchase.
Here’s the key: apply for a business credit card that has a 0% intro APR period. That way you’ll have a set number of months to pay off your debt interest-free.
Use it to reap rewards
When you run a small company, you need all the help (and perks!) you can get. Most business credit cards come with rewards programs.
Each time you write a check or pay for something in cash for your business, you’re missing out on an opportunity to earn rewards on necessary spending.
The rewards programs for business cards are varied and include opportunities to earn points, cash back, or travel bonuses, so there’s likely a card out there that will best fit your needs.
Use it to create a financial paper trail
It’s never too early to start delineating between your personal and business finances. When your business is just starting out, you may be financing things yourself and putting business-related costs on your personal credit card.
However, come tax time, this mixing of personal and business-related purchases can be difficult for you and your accountant to untangle, and if you or your business is audited, a lack of differentiation between personal and business-related expenses can get you into trouble with the IRS.
Establishing a credit card for your business and keeping all business-related costs on that card alone will allow you to quickly, clearly, and easily demonstrate the line between your personal and professional finances.
A secured card can bolster weak credit
If reading about the benefits of owning a business credit card has inspired you to apply for one, but you’re worried that your personal credit score is too weak to allow you to qualify, don’t fret!
There are secured business credit card options available, and they allow those who have credit scores on the lower side (usually below 600) to obtain a business credit card and strengthen their credit score in the process.
With a secured card, you’ll put down a deposit up front, which the card issuer will hold onto for the life of your card. The difference between a secured card and prepaid card is that with a secured card, the deposit doesn’t go towards your monthly spending. The benefit here is that, unlike with prepaid cards, secured cards do report into the three major credit bureaus, which means you’ll be building credit along the way (with responsible repayment, of course!).
Secure a card for your small business sooner rather than later
When you’re establishing your business, one of your first moves should be to apply for a business card. With all of the upfront costs, having a credit card on hand will allow you the financial flexibility to make those purchases, all while earning rewards on those necessary expenses.
It also allows you to get a jumpstart on establishing your business’s credit history, independent from your personal credit, which will make applying for loans and other forms of financing easier when the time comes.
The only real reason to hold off on applying for a business card is if you do not have the financial resources to manage it responsibly. While there are many benefits to responsible credit card use, you don’t want to incur insurmountable debt early on (or ever) in your business’s life. Not only will it put unnecessary pressure on your company’s finances, it will also cause damage to your business credit score, which takes time to repair.
