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Many business owners start their business very informally. Maybe they take on a small project and the client pays them by check or Venmo payment they deposit into their personal bank account. If they need to buy something for a business, they put it on their consumer credit card.
But once you start taking on more clients, this approach quickly reaches its limits. It’s hard to accurately track your business finances when your business and personal finances are one big hodgepodge. Here are five reasons to get a business credit card.
1. Business Credit Card Helps You Build Business Credit
If you use your consumer bank account and credit cards for business purposes, you can build up personal credit, but you will not build up business credit. As your business grows, you will find that having a reliable business loan can help you if, for example, you need to get a bank loan or trade loan from other businesses. Using a business credit card is one way to start creating a separate loan for your business.
2. Business credit cards have higher credit limits.
Your business credit card limit will depend on your credit history and other factors, but according to Experian, the average credit card limit for a business card has hovered around $56,000 in recent years.
To give you an idea of the scale of business spending that issuers expect, the Blue Business® Plus credit card from American Express offers 2 points per dollar for the first $50,000 per year for business purchases (1 point per dollar thereafter), while Ink The Chase Business Preferred® Credit Card offers 3 points per dollar on the first $150,000 spent in certain business categories during the year and 1 point per dollar on other purchases.
If you’re growing a business and need to make significant purchases, such as a large order for inventory, higher credit limits on business cards may come in handy.
3. Business credit card rewards and benefits are linked to business purchases.
When using a consumer credit card, reward points are often linked to typical purchases you make to cover living expenses, such as shopping at supermarkets and pharmacies. Similarly, business credit cards reward typical business purchases such as airline tickets, office supplies, and technology. Using a business credit card will help you maximize those rewards.
If you are in a consulting business and spend funds in various categories, a simple 2% flat rate card such as Capital One Spark Cash Plus may be suitable for you, for example. But an e-commerce business can do better with an Ink Business Cash® credit card that gives you 5 percent cash back on your first $25,000 spent on Internet, office supplies, cable and phone service each year.
Even startups have some lucrative business card options, especially if you have a cash advance. The Brex 30 card, for example, is actually a debit card, not a credit card, which means it is automatically paid in full each month. To qualify, you need to have at least $100,000 in a corporate account, but this does not require a personal guarantee or credit check. You can earn generous rewards (up to 7 points) for software, restaurants, and Brex Travel, among other perks.
4. Using a business credit card will make your bookkeeping easier
Bookkeeping can be a real hassle if you pay your jumble of business expenses out of personal credit cards, or pay them out of your own pocket with a check, Venmo, or PayPal. Placing all your business purchases on one or two credit cards can make it much easier for you or your accountant to balance your books each month.
Most business cards offer quarterly and yearly summaries and let you sync purchase records with accounting software so you can track expenses on both your card and employee cards, making tax preparation easier. For example, Amex and Chase business cards integrate with QuickBooks, while Capital One business cards let you upload purchase records to Quicken, QuickBooks, and Excel.
5. It’s easier to get tax credits if you use a business credit card
Most small business owners don’t have the time to keep track of all the possible tax deductions available to them the way an accountant might. Many business credit cards offer useful estimates for the different categories of expenses that purchases fall under, so your accountant can easily get a general overview and find deductions for you. Businesses are taxed on their profits, so every legal deduction you make can contribute to lowering your tax bill.
bottom line
Result? You may want to avoid using personal credit cards for your business for the first few months. But if you’re serious about running your business, getting a business credit card is one of the smartest steps you can take to get the credit you need, maximize reward points, and keep your finances organized.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.