A business owner holding a credit card while talking on the phone

What You Need to Know About Business Credit


More than half of small businesses use credit cards on a regular basis—but is that resource being leveraged as effectively and powerfully as it could be?

More than half of small businesses use credit cards on a regular basis—but is that resource being leveraged as effectively and powerfully as it could be?

Whether you’re new to the world of business credit or are simply considering your options, this concise guide can help you position your company to effectively use and manage this tool.

Using a business credit card vs. a line of credit

For newer businesses or those who haven’t used credit extensively, choosing between a business credit card or a line of credit can sometimes be confusing.

The main difference between the two comes down to limits and access. A business line of credit provides access to cash that goes directly into your business bank account, whereas a business credit card can be used wherever credit cards are accepted. This means that while lines of credit tend to have higher limits, they are not as convenient to spend. They’re best suited for one-time special purchases.

A credit card might be preferable for smaller or ongoing purchases that happen more frequently. You can issue the card to select managers or staff, and not have to worry about waiting for an invoice or writing a check. Credit cards are also more useful for online purchases – think office supplies or subscriptions related to the business. This is a convenient source of short-term financing and can be cost-effective, particularly if your company pays the credit card balance in full each month.

Because there are pros to both, having both a business line of credit and a business credit card in tandem may be a solid approach to meeting your company’s short-term financing needs.

Why use a business credit card?

Business credit cards not only allow a company to track expenses in one convenient place and avoid the need for an owner or designated employee to run up personal cards, but also provide access to funds that can be easily utilized to make necessary purchases for the company, as well as cover travel and other miscellaneous business expenses.

While the personal credit of small- and mid-sized business owners will often be considered in the application process, there can be significant differences between a personal and business credit card.

For example:

  • Bookkeeping is easier with a business credit card since the expenses are already broken out and can be integrated with accounting tools.
  • Business credit card limits are often higher than those for consumers.
  • Any bonus rewards from the card will tend to be geared toward business expenses.
  • Business credit cards could impact both your personal credit and that of the business.

Controlling business credit card usage

Money spent via a company credit card is no different than any other disbursement. Just as most businesses don’t provide access to the company checkbook, you will want to control which employees have access to a company credit card. Also, formulate strong guidelines for how it can be used, set limits on the amount that can be spent, and establish alerts to help monitor usage.

What to know before you apply for a business card

If you’re hoping to be a good business credit candidate, there are a few things you’ll want to do with your operations to help establish credibility. This is especially important if you have poor personal credit history, as a personal credit check is often part of the review process:

  • Be sure your business has its own identity: Determine and establish the proper business entity type for your company. This might be an S-Corp, an LLC, or something else. This will help show that your personal and business operations are distinct.
  • Obtain a federal tax I.D. number (FEIN): You will want to use this number versus your personal Social Security number for any business conducted.
  • Open a separate checking account for your business: Use this business account for purchases and payments related to the business so you can keep business and personal expenditures separate.
  • Establish a separate business phone number: This is another step in building your business's identity and ensuring operations are distinct from personal matters.
  • Conduct business under the name of your business, not your own name. This is mostly for bookkeeping purposes. Consistently keeping revenue and expenses under the business name makes it easier to obtain any records or proof of revenue you may need in the application process.

Maintaining a good business credit score

You may not have credit needs at the moment, but establishing and maintaining good credit can be critical as your business grows. The ability to obtain a business loan or a line of credit will depend in large part on the financial and credit history of the business.

The rules of thumb for maintaining a good business credit score are not all that different than the ones you’d employ for your personal credit score:

  • Pay your business credit card bill by the due date each month.
  • Pay all bills and invoices connected to the business by the due dates. This includes invoices for products and services for the business, office rent and your phone bill—and any scheduled payments on any business loans or credit lines.
  • Be sure to be current on any business taxes that are due.

Whether you’re a large company or a small business, your business credit card has the potential to fuel growth. It’s one of the main sources of financial, operational and strategic flexibility.

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