How to Properly Use a Business Credit Card

A business credit card serves as a dedicated financial tool for entrepreneurs and small business owners to manage company expenditures. It functions similarly to a personal credit card but is specifically tailored for business transactions, providing a revolving line of credit with defined terms. The primary purpose of using such a card is to establish a clear distinction between business and personal finances, a practice fundamental for sound financial management. This separation is crucial for accurate record-keeping, simplifying accounting processes, and ensuring financial transparency for the business. By maintaining distinct accounts, entrepreneurs can track operational cash flow and manage expenses, avoiding commingling funds that complicate financial oversight.

Selecting and Applying for a Business Credit Card

When selecting a business credit card, evaluate various factors to align with specific business needs. Interest rates, or Annual Percentage Rates (APR), are a primary consideration, especially if carrying a balance. Introductory 0% APR offers may also be available. Annual fees should be weighed against the value of associated benefits like rewards.

Reward programs offer incentives that should align with spending patterns. Cash back provides direct returns, while travel points suit frequent business travelers. Credit limits are determined by the issuer based on credit history and income, often exceeding personal card limits. Introductory offers provide initial advantages, but their terms require careful review.

Applying for a business credit card requires detailed information to verify financial standing. Required details include the business’s legal name, address, and structure (e.g., sole proprietorship, LLC, or corporation). An Employer Identification Number (EIN) is generally needed for structured entities; sole proprietors might use their SSN. Utilizing an EIN can strengthen the application and better distinguish business from personal finances. Annual business revenue and financial statements are also requested to assess repayment capacity.

A personal guarantee is almost universally required for small business credit cards, making the owner personally liable for the debt if the business defaults. This personal liability means that missed payments can negatively impact the owner’s personal credit score.

The application process, often online, involves a hard inquiry on the applicant’s personal credit report, leading to a temporary dip in the personal credit score.

Issuers evaluate both personal and business credit histories. For approval, a good personal FICO score (e.g., 670 or higher) is often required. This is especially true for newer businesses without an established business credit profile.