How Do Small-Business Credit Cards Work?

Advice & Stories, Credit & Debt, Featured Article, Living & Spending, Small Business
on March 30, 2015
Credit or Debit: Small Business Cards

By opening business credit cards, small-business owners can appear more professional, gain access to more working capital to fund their operations, and streamline their record keeping system. If you’ve started a money-making venture, even if it’s just providing a service, look into opening a small-business credit card to expand your financial possibilities.

Who Qualifies?

Small-business credit cards are different than corporate cards in that small-business cards are tied to an individual, rather than a company. Corporate (as opposed to small business) cards are issued to large businesses with significant assets and credit histories. This means you will qualify for a card based on your personal credit history. When you apply for a business card, lenders will pull your personal credit reports. If you have a poor credit history or a low credit score, you most likely won’t get a card for your business, no matter how well the business is doing. The good news is, if your new company has no credit history, you can still get a card in your company’s name if you have good personal credit.

What are the Advantages?

A small-business credit card can get you access to capital to help run your business. A $5,000 or $10,000 credit card limit can help you pay for equipment, materials and advertising for your business, or even fund the majority of its early operations. Vendors, suppliers and other partners might take you more seriously if you pay with a business card rather than a personal check, and you can separate your business finances from your personal money more easily with a business card.

Like personal credit cards, you can earn different types of rewards with a business card, including travel, lodging, purchasing and cash-back benefits. If you pay all of your business expenses (e.g., rent, insurance, copier lease, office supplies, computer equipment) with a credit card, you might quickly earn enough airline and hotel points to reduce the costs of future business expenses.

You can add employees as authorized users of a business credit card. This helps you avoid having to ask employees to pay for their own expenses when they’re on the road and then wait to be reimbursed once they return home.

What are the Risks?

You are personally on the hook for the use of your small-business credit card. If you order $10,000 worth of materials to fill a sales order and your customer doesn’t pay you, or if you are late with your monthly payments, your personal credit can get dinged. If an employee misuses your card, such as going over your credit limit, your personal credit can get dinged. If you fold your business, you can’t walk away from your credit card debt, even if you declare bankruptcy for the company.

Charge Cards vs. Credit Cards

Make sure you know whether your card is a charge card or a typical credit card. Unlike regular credit cards, charge cards require you to pay the full balance each and every month, as opposed to a minimum payment. Finding this out after you make a $3,000 charge can have serious consequences for your personal credit if you can’t make the payment on time. A charge card (like an American Express) makes its money from the fees it charges merchants who accept your card, from the annual fee you pay—and from any penalties you generate.


Business card rewards include airline miles, points for reduced hotel rooms, free baggage checks when flying, seat upgrades, or free ticket changes after booking. Some cards offer rewards for specific purchases, such as office supplies, equipment or dining.

Ask if a card you’re considering offers warranty protection on purchases. Price protection guarantee programs provide you with a rebate if you purchase an item and see it advertised for less within a specific time frame. For example, if you buy an office chair for $100 and see if advertised for $75 next shortly afterward, you’ll get a $25 reduction on your credit card balance. Other cards offer rewards for spending on items ranging from Internet fees to gas purchases. Cash-back programs help you earn a percentage of your spending to use to reduce your balance.

Things to Look For When Shopping for a Business Card

Annual percentage rate (APR):  Look for three different interest rates: purchases, cash advances and balance transfers. A fixed rate doesn’t change, while a variable rate changes with the prime rate. Make sure you know what can cause an interest rate hike, such as paying late or going over your limit.

The Credit Card Act of 2009, which protects consumers from arbitrary interest-rate hikes, doesn’t apply to business cards. This means that even if you meet all your obligations, the card issuer can still hike your rate. Make sure you read the fine print to know if and how you’re protected with each business card you consider.

Annual fee

Penalties: Penalties not only include late charges and overdraft fees, but interest rate increases, as well.

Payment window: A personal credit card gives you approximately one month to pay your monthly minimum balance. Small-business cards often have shorter windows to pay. In addition, card issuers can mail your business card statements later than they are legally allowed to mail personal card statements.

So beware—you might think you have 30 days to pay, miss your shorter payment window, and then end up with a late fee and higher interest rate.

Signing bonus: Look for cards that offer a signing bonus, such as a large number of airline or other reward points.

Employee cards: Ask if you can add authorized employee users to the card, if you can limit the amount they can charge, and how you will be able to track their use of the card.

Before You Apply

Before you apply for any card, pull your free credits reports. You can get your three credit reports free once each year by visiting a site like Follow the steps at the website of any credit reporting agency if you want to challenge or comment on any information you think is incorrect or needs clarification. TransUnion, Equifax and Experian all provide instructions at their websites. Remember that applying for multiple cards can reduce your credit score, so only apply after you’ve done all your homework.

Sam Ashe-Edmunds has been a small-business consultant and owner for more than 25 years. He has written for a wide variety of magazines, newspapers and websites, including Entrepreneur, The Chicago Tribune, Chron Small Business, AZ Central Your Business, TheNest, Zacks, Motley Fool, Synonym Money, GlobalPost and Opposing Views.