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What’s the benefit of a business credit card over a personal credit card?

Why using a business credit card instead of a personal credit card makes sense

We create companies because they exist as separate entities from ourselves. This helps to protect your personally from lawsuits against your businesses but also because successful companies should have more financial options than individuals.

In this article, you’ll learn:

  • how business credit cards build credit history and can improve your credit scores
  • that credit limits can grow higher when you use a business credit card
  • why using business credit cards limit your personal liability on your debt
  • to get excited about the sweet perks business credit cards offer for your business
  • some of the downsides in using a business credit card

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Builds business credit history

Business credit cards build credit history

Lenders, banks, and business partners keep track of how healthy your business is through the use of credit scores. Your credit score is like a report card for your business, signaling to partners and lenders how credit worthy your business is.

Using a business credit card is one way to start building credit for your business. By charging expenses to your business credit card and paying them off on time, your good payment history should start positively impacting your business credit score. As your business credit score improves, you’ll find more financing opportunities for your business and better rates.

Increase credit limits

business credit cards qualify for more credit than you can personally

For most individuals, our personal credit limits are pretty fixed. They’re heavily correlated to our debt to income levels, and because most people see just a general rise in their incomes over their lifetimes, personal credit ceilings don’t have unlimited upside.

Not so with a business. While starting a business takes Herculean strength and a fair share of luck, a business has unlimited upside for its revenues. That also means that as a business grows, it should be able to grow its own credit limits. That would show in a growing credit limit on a business credit card and better rates on financial products, too.

And because a business can (and should) build its own credit history, it’s possible to improve a business credit score even with bad personal credit.

Limits personal liability

why using a business credit card limits personal liability

A corporate structure protects individuals from liabilities that may occur in their businesses. The same thing is true when you separate personal finances from business finances. It keeps things cleaner and helps ensure that your business and you are seen as separate entities.

By keeping things separate, you enable your business to stand on its own and accrue credit at the business level, without having to rely on your own personal credit. Of course, it’s not that simple and when you start a business, for a few years at least, you’ll probably have to rely on your personal credit until your business establishes its own. But eventually, you won’t have to personally guarantee your business loans.

Perks and bigger signup bonuses

business credit cards have great perks

Credit card companies want your business. They especially want to provide your business with credit cards. It may not feel that way because you may be getting your credit applications rejected or end up with small credit lines. That’s just credit companies trying to protect themselves.

But, make no mistake — they do want your business. That’s how they make money. You just need to prove to them that you’re worth doing business with (or, put differently, they’ll make money off of your business account and not lose money).

To compete for your business account, credit card companies offer a whole boatload of perks — things like 2x and even 3x points for every dollar your business spends. Expect to see some kind of signing bonus when you open up a new business card. Some bonuses on popular business credit cards typically run at 25,000 to 50,000 points. Points can be redeemed for cash, airfare, hotel accommodations.

One thing to keep in mind when signing up for a business credit card is that many cards require a certain minimum spending (say, like $3000 in 3 months, or something like that) to qualify for the signup bonuses. The spending hurdles associated with business cards are generally higher than those you may be used to for your personal credit cards.

Enable employee spending

business credit cards give employees ability to spend

As your business grows, you want to be able to scale it. That means hiring people to do some of the work you were doing in the early days. That frees you up to lead and puts more oars in the water to power your business.

One perk businesses give to some of their employees, especially those in sales, is giving them a credit card for their business expenses. For an employee, having a business card sure beats having to spend your own money and waiting to get reimbursed in the next pay cycle. You can give your employees a business credit card, with its own credit limits, to use for their business expenses.

Are there downsides to using a business credit card?

downsides of business credit cards

Nothing is perfect and business credit cards aren’t the right financing solution for every business. There are side effects associated with using a business credit card that are worth knowing about.

First off, the goal may be to totally separate your business finances from your personal finances but in reality, it’s a process. You’ll most likely need to personally guarantee your first business credit cards. That means you’ll personally be on the hook for debt that your business accrues. That will change over time as revenues and credit grow, but that’s life in the beginning.

Because survival rates are generally low for small businesses, you’re most likely a risky borrower. To get compensated for the risk a credit card company takes in extending a credit line to your business, it will probably charge pretty high rates, as well. There may be a yearly fee involved, too (these yearly fees are frequently waived for the first year as part of a signup bonus).

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