5 Reasons Every Small Business Owner Needs a Business Credit Card

If your small business doesn’t have a credit card, today might be the time to apply.

---

Key Point

• Business credit cards may pay higher rewards, especially in certain categories of business spending.
• Helps keep personal and business expenses separate.
• You don’t have to have a registered business to qualify. Applications include many forms of side income.

---

Many of the personal finance lessons apply to small business finances. For example, having a business emergency fund is valuable. Budgeting is as important as paying bills on time and building a business’s credit score. There are advantages to having a corporate card. However, just like with your personal credit card, it’s important that your balance doesn’t build up so much that you can’t pay it back.

Here are some reasons why every small business owner needs a business credit card.

1. May earn more rewards

One of the great perks of having a corporate credit card is the ability to earn rewards for your business spending. You can choose a suitable overall flat rate, or choose a card that pays more in areas where your company spends more, such as travel or office supplies.

If you have high spending in your pipeline, you can look for business credit cards with signup bonuses. All Chase Ink business cards come with generous welcome bonuses. Capital One Spark 2X Miles pays you 50,000 miles when you spend $4,500 in the first three months.

In addition to higher rewards, some business credit cards come with useful perks. For example, if you travel a lot, there are cards that provide travel insurance and access to airport lounges. These aren’t essential features, but they can make a difference if you’re always on the go.

2. Helps build a business credit history

Having good business credit is helpful if you need to borrow money. It also helps build trust with suppliers and reduce other costs such as insurance premiums. Building a credit history requires several steps, including obtaining an Employer Identification Number (EIN) and setting up a business bank account. For more information, see our guide to building business credit.

Use your business credit card to cover your daily expenses and make sure you pay your balance each month. As long as your card issuer reports its activity to business credit bureaus (unfortunately, not all credit bureaus do), it goes a long way toward building a healthy business credit score.

3. Easily separate business and personal spending

Having all your personal and business expenses jumbled together can be a nightmare when it comes time to pay your taxes. Also, you could be personally liable if someone files a lawsuit against your company. Not to mention the increased stress and difficulty associated with tracking cash flow and budgeting.

Opening a business checking account is essential to keep your finances separate. It is the first step in setting up a firewall between your money and company stuff and separating your finances. It’s one big step.

4. May Help Solve Short-Term Cash Flow Problems

Maintaining credit card balances can be expensive and financially damaging over time. However, if you have pressing cash flow issues, a business card might solve the problem. For example, a client is late in paying a key when several bills are due. In an ideal world, some business emergency fund could get you through, but many business owners operate on very tight profit margins, so that’s not always possible.

You may also qualify for a card with an initial APR of 0%, especially if you are unable to obtain a loan or business line of credit. Make sure you can pay before the referral period ends. Otherwise, you may incur significant interest charges.

5. Getting certified may be easier than you think

You don’t have to have a registered business to qualify for a business card. You can qualify as a sole proprietorship and list a variety of additional income-generating activities in your application. This includes freelance activities, side jobs, and gig work. We still need to provide a lot of information to support your application. Also, card issuers are likely to conduct stringent credit checks, which slightly lowers a person’s credit score.

Conclusion

For small businesses, there are many benefits to opening a business credit card. The only caveat is that you have to repay the balance every month. Otherwise, the interest payments will outweigh the value of these benefits.

Take your time and find a card that fits your needs. For example, if you run a dog walking business, you may not qualify for a card designed for large businesses. Look for cards that reward the types of spending you normally make or offer perks that you can use. The right business credit card can make a big difference in your business.