Best Business Credit Cards

Answer by: Rama Malladi, Associate Professor of Finance, California State University, Dominguez Hills, CA

Credit cards fall into three major groups:

1. Personal cards for individuals
2. Small-business cards
3. Corporate cards for large businesses (typically more than $4 million in annual revenue)

They differ mainly in eligibility, credit limit, liability, point collection, and regulations. Since most people have a personal credit card, they are familiar with the application process. The business credit card application process is similar. Quite often, banks that transact with the business offer business credit cards and help in the application process.

However, most major banks offer business credit card programs. The most commonly used details are business name, tax identification (Social Security number or Employer Identification Number), date of birth, contact information, business details (start date, employees, state of business, title, annual revenue, estimated expenses, etc.). Small business credit card applications also require a personal guarantee and personal credit score.

Answer by: John J. Petosa, CPA, J.D. Professor of Practice, Syracuse University, Whitman School of Management

The application process is usually very similar with either an online or paper application. There are obvious differences in the information being requested, for example, the individual application would ask for the income of the person applying while the business card would want the sales and/or net income of the business and possibly a financial statement.

Answer by: Thomas Ulbrich, Executive in Residence for Entrepreneurship, University at Buffalo School of Management

If we’re focusing on small to mid-size businesses (which are the vast majority of businesses in the U.S.), truth be told there is little difference between the two. A small business credit card functions much the same as a personal credit card and the application process is similar. You are almost certainly going to have to give your personal information and personally guarantee the card if you aren’t a publicly traded company.

Answer by: Rainford Knight, PhD and Instructor for Finance, Florida Atlantic University School of Business

In order to assess your credit worthiness, credit reports are usually pulled. The process of pulling credit reports – hard pulls – will negatively impact your credit scores.

Answer by: Rama Malladi

Business credit cards require the owner or an authorized officer who can borrow on behalf of the business to sign the application. Corporate cards for large businesses typically require more significant annual revenue (example: more than $4 million), a minimum number of card users (example: 15), sufficient credit card usage (example: $300,000 or more), be registered as a corporation (instead of a sole proprietorship), tax ID and state registration, and recent audited financial statements.

Answer by: John J. Petosa

Each bank is different, but they’re making a credit decision so the Dun & Bradstreet number and the credit history of the business are taken into consideration. Some card companies follow new incorporations and offer introductory cards with a low threshold of say $2,000 as a way to gain the business of a new entity.

Answer by: Rama Malladi

Unlike the small-business credit cards that make cardholders personally responsible for the card balance if the business fails, business (corporate) cards make only the business liable for the card debt. Typically, most small-business credit cards require a personal guarantee along with the application. If the business defaults (fails to pay credit card bills), the personal guarantor may be financially responsible. It may be possible to waive the personal guarantee requirement based on company payment history, solid financials, and low leverage ratios.

Answer by: John J. Petosa

Since many businesses choose to incorporate, the assets of the corporation are the sole way that the card payments would get paid. If the business goes bankrupt, credit cards are an unsecured creditor and therefore unlikely to get paid or are paid last after secured creditors. As such, and as a way to keep the interest rates somewhat reasonable, a personal guarantee will give the credit card issuer some additional collateral to collect any unpaid balances in the event the business files for bankruptcy.

Answer by: Thomas Ulbrich

I love this question as it makes me smile when I think the number of times I’ve heard a small business owner say, “I’m going to get a business credit card so I don’t have to do a personal guarantee”. That’s simply not going to happen. Although you won’t be signing a huge loan document, read the fine print on the application and in your acceptance letter. You’re responsible for the card. It’s under your social security card number, remember when you had to fill that in on the application?

There may be some advantages to choosing certain business card issuers over another if you look into their credit reporting policies. If you have a personal credit card you’ll typically have your credit history reported to the consumer credit bureaus on a monthly basis. That’s true for some business credit cards too, but there are some business credit card issuers that only report to the commercial credit bureaus and not the consumer credit bureaus. To further complicate things, you want to be doubly careful which card issuing bank you choose if you do have trouble making timely payments as many of the small business credit card companies actually report your activity to both the consumer credit bureaus and the commercial credit bureaus, which affects both your personal and business credit scores.

Answer by: Rainford Knight

Most business credit cards come with personal guarantees. So, if you do not have decent credit, getting a business credit card will be challenging. The personal guarantee protects the card issuer if the business fails, the borrower is still on the hook for the borrowed funds.

Answer by: Rama Malladi

Using a small business credit card may be advantageous in the following areas:

A) Minimize reimbursement process: employees spend lots of time submitting documents and wait to be reimbursed.

B) Expense analytics: Since credit card companies provide expense analytics (monthly or quarterly, or annually), the small business does not need an expense analyst. So, the company can reduce time in number crunching and instead focus on improving the business.

C) Manage employee spending: Each employee spending can be managed automatically by setting limits and using the credit card systems (instead of a small business employee keeping track of spending).

D) Points to the company, not individual: Some companies may not allow employees to use personal credit cards for business purposes since the benefits of personal credit card usage go to the individual.

E) Build business credit: Business credit history is often used to make business loans and other lending decisions. Dun & Bradstreet, Experian, and Equifax Commercial are a few firms that keep track of business credit history. One primary reason for not using a personal credit card for business is inadvertently crossing the firewall between personal and business expenses. Commingling business and personal expenses can happen quickly in such a scenario and may violate company ethics guidelines and breach the firewall between a person and business. The CARD Act of 2009 provides many legal protections (such as constraints on APR increases, the fee for infractions) to users of personal credit cards, but these protections do not apply to business card users.

Answer by: John J. Petosa

If the business card is used effectively and is paid within terms, this helps build the business’ credit just as it would for an individual. Additionally, if for some reason the business card isn’t guaranteed the business owner would not be held responsible for the balance in the event the business fails. If the business fails and the owner uses their personal card, they not only have a failed business, but will impact their personal credit if they don’t pay the personal card.

Answer by: Thomas Ulbrich

There are a few reasons that a small business may want to use a business credit card instead of their personal card:

A) Although it is perfectly legal and acceptable to use your personal card for business, you do have track your purchases carefully and make sure you’re not mixing personal and business charges. Although the credit card companies likely won’t care, the IRS will if you get audited. Having a dedicated business credit card is a great way to keep things cut and dry. Business charges are business. Period.

B) Many business credit cards provide you year-end statements that can separate purchases by categories, making it easier for you and your accountant to complete your tax returns.

C) Annual fees can be tax deductible in many instances

D) Many times a business credit card has much higher limits than you might get with a personal card

E) Many cards offer unique and valuable bonus points or cash back which can be attractive if you are charging large sums of money. Sometimes business cards have super attractive 0% introductory periods that may be attractive to business owners

Answer by: Rainford Knight

There are several good reasons why a small business would want to use a business credit card instead of a personal credit card:

A) Ideally, a business owner should not mingle business and personal expenses. These expenses should be kept separately so that the cost of running a business can be clearly determined and done profitability. Also, proper expenses need to be tracked for tax purposes.

B) Using a business credit card will help to establish business credit history which could lead to better financing terms (for loans and credit lines) at some point in the future.

C) If you need to rebuild your credit, then a business credit cards showing on time payments and no defaults can be helpful.

Answer by: Rama Malladi

Business credit cards can be helpful in the following areas:

1. Manage and monitor employee expenses effectively
2. Establish and build business credit
3. Motivate and recognize key employees
4. Create a company-wide pool of points
5. Provide access to emergency financing, and
6. Create a higher credit ceiling since credit limits are higher for businesses than those for people.

Answer by: John J. Petosa

Most businesses look for low interest cards and/or build points or cash back rewards as an additional way to finance their growing business. The key is discipline! Pay the balance each month to avoid higher interest costs, additional fees and provide room for unexpected expenses.

Answer by: Thomas Ulbrich

A word of warning. Like a personal credit card, don’t use if for the wrong purposes. It should never be used for long-term purchases or to try to save a dying business as in the end. It’s likely you’ll be on the hook for that debt. There is a saying that says, “I went bankrupt gradually, then suddenly”. The same goes with credit card debt, it sneaks up on you and builds gradually, only to find out that suddenly you’re beyond the point of being able to pay back the debt you’ve accrued. Business credit cards are a great tool for a good business, but they are not a panacea for a failing business.