If you use credit cards, then you probably have a business credit card or have seen one advertised. Unfortunately, most credit card users are unclear about the differences between business and personal credit cards.
What is a business credit card?
At its core, a small business credit card is really just a standard consumer credit card that is being marketed to small business owners. Note that a corporate credit card is an entirely different product that is aimed at large business, government, and non-profit organizations.
Besides being labeled “for business,” these cards tend to offer features and benefits that are more closely aligned with the needs of small companies. For example, a business credit card that offers rewards will generally feature bonus categories like office supplies, shipping, and advertising instead of more consumer focused purchases from grocery and department stores.
In addition, credit card payment networks offer business cardholders discount programs for purchases from specific merchants that serve businesses. American Express offers its OPEN savings program, while Visa has its Visa Saving Edge, and MasterCard features its Easy Savings program. These programs can offer discounts on travel, office supplies, advertising, and other common business purchases.
Business credit cards can also offer features to help companies manage and track expenses. A good business card will offer services such as quarterly and annual summaries of expenses that are customizable.
Like consumer cardholders, business users can add authorized users for their employees. But with some business credit cards, the primary account holder can receive alerts on employees spending and set limits in advance.
More recently, some card issuers have been adding mobile apps as a feature of their business credit card accounts. These apps let employees capture images of receipts, and gives them the ability to tag and categorize them.
What are the legal differences between business and personal cards?
It used to be that there was no legal difference between business and personal cards, but when the CARD Act of 2009 was passed, it carried some important distinctions.
Many of the protections that were included in this law were designed only to be applied to consumer credit cards, leaving business cards to potentially operate under the old rules. In theory, business card issuers could change their card’s APR with no notice, or could charge late fees that wouldn’t be legal for a consumer card. Thankfully, most credit card issuers have chosen to voluntarily extend CARD Act protections to holders of business credit card accounts.
Who can get a business card?
These cards are offered to anyone who has a small business, even if they are just getting off the ground. In fact, you business doesn’t even need to be incorporated, so you can qualify for a business credit card as a sole proprietor even if you are just earning money on the side by mowing lawns or selling merchandise on Ebay.
The application for a small business card in nearly identical to that of a consumer credit card with a few exceptions. Applicants will be asked to supply an Employer Identification Number (EIN), but you can use your Social Security number if you don’t have one. Applicants will also need to offer some information about their business, such as the industry they are in and its estimated revenue.
Should you get a business card?
The primary reason that most business owners decide to get a dedicated business credit card is to separate their company expenses from their personal ones. Another good reason is the ability to earn rewards for their spending in the form of cash back, points, or miles. These cash back rewards can help boost profits, while points and miles with travel providers can offer travel rewards that are a nice perk for business owners.
And by making employees authorized cardholders, business owners can simplify employee purchasing while earning even more rewards from those purchases.
Otherwise, business credit cards offer many of the same features and benefits of personal cards, such as travel insurance and purchase protection policies. For example, airline credit cards may offer priority boarding, discounts on in-flight purchases, and free checked baggage. Likewise, hotel business cards can offer cardholders room upgrades, late checkouts, and even free breakfast.
Other concerns about business credit card use that you should be aware of
When you apply for a business credit card, you are doing so based on your own personal credit history. In addition, you will be personally responsible for the repayment of all debts, no matter how you have legally structured your business. You will also be responsible for all of your employee charges to their cards, so it’s vital that you keep close tabs on their spending.
Finally, it should be noted that business credit cards usually include terms that require them to only be used for business expenses, however that is merely a condition of the cardholder agreement and is not legally binding.
In practice, there is no way to for a credit card issuer to know if a charge was a business expense or not, and cardholders simply need to make sure that they only claim legitimate business expenses on their business tax filings.
By understanding the advantages and drawbacks of small business credit cards, you can decide how these tools can best serve the needs of your company.