What Is a Business Credit Card and How Does It Work?

A business credit card helps companies manage operational expenses. It allows businesses to make purchases on credit, similar to personal cards. Its primary purpose is to facilitate commercial transactions and provide financial oversight. This card helps businesses maintain clear financial records, manage cash flow, and track spending. It supports financial organization and contributes to overall financial health.

Distinguishing Features of Business Credit Cards

Business credit cards differ from personal cards in financial reporting. Personal cards report to consumer bureaus (e.g., Experian, Equifax, TransUnion). Business cards report payment history to commercial bureaus (e.g., Dun & Bradstreet, Experian Business, Equifax Business). This establishes a distinct business credit profile, separate from the owner’s personal credit.

Many business credit cards, especially for smaller or newer entities, require a personal guarantee. This means the owner assumes personal liability if the business defaults. This links the owner’s personal credit to the card’s financial standing, securing the issuer.

Underwriting evaluates the business’s financial health and the owner’s personal credit history. Issuers consider business revenue, industry type, years in operation, the owner’s personal credit score, and debt-to-income ratio. This dual assessment determines creditworthiness and card terms.

Legal responsibility for the debt rests with the business, but the personal guarantee makes the owner secondarily liable. This ensures creditors have recourse if the business cannot fulfill its obligations. Spending limits are generally higher than on personal cards, reflecting a company’s larger financial needs. Limits are determined by the business’s projected spending, revenue, and financial stability.

Operational Advantages for Businesses

Business credit cards offer advantages for managing daily operations and financial clarity. They streamline expense tracking and categorization, providing detailed transaction statements and integrating with accounting software. This simplifies expense allocation, valuable for financial analysis and tax preparation.

Separating business and personal finances is a key benefit. Using a dedicated business card helps maintain the corporate veil, protecting personal assets from business liabilities for entities like LLCs and corporations. This division is important for accurate financial reporting and simplifies audits.

Business credit cards assist with cash flow management, providing flexible working capital to bridge short-term gaps. They offer a grace period, typically 21 to 25 days, during which no interest accrues if the full balance is paid. This allows businesses to manage payables without immediately drawing down cash reserves.

Consistent, responsible use builds a positive business credit history. This credit profile is independent of the owner’s personal credit and is essential for securing future business loans, lines of credit, or favorable supplier terms. A strong business credit score signals financial reliability to lenders and partners. Many business cards allow issuing additional cards to employees, with customizable spending limits and detailed reporting. This provides greater control over company spending and simplifies staff expense reporting.

Types and Common Features

Business credit cards come in various forms. Revolving credit cards allow businesses to carry a balance month-to-month, subject to interest. Charge cards require the full balance paid each billing cycle and may not have a pre-set spending limit. Secured business cards require a cash deposit as collateral and are available for new businesses or those building credit.

Many business credit cards offer reward programs tailored to business spending, providing points, cash back, or travel miles on categories like office supplies, advertising, or shipping. A card might offer 3% to 5% cash back on relevant expenses. These rewards offset costs and provide value.

Issuers provide reporting tools, including online dashboards, mobile applications, and year-end summaries, which help businesses analyze spending and prepare for tax season. These tools categorize expenses automatically and integrate with accounting software.

Business credit cards also come with fees and interest rates. Annual fees range from $0 to several hundred dollars, depending on the card’s features and reward structure. Foreign transaction fees, typically 1% to 3% of the transaction, apply to purchases made in foreign currencies or outside the United States. Annual Percentage Rates (APRs) are variable and depend on creditworthiness, commonly 18% to over 29%.

Applying for a Business Credit Card

Applying for a business credit card requires information about the business and its owner. Applicants provide the business’s legal name, physical address, Employer Identification Number (EIN), and structure (e.g., sole proprietorship, partnership, LLC, or corporation). Annual revenue, industry type, and employee count are also requested.

For the owner or guarantor, personal details like Social Security Number (SSN), personal income, and an estimated personal credit score are necessary. The application process usually involves an online form, though in-person applications are possible. During review, a hard inquiry may be made on business and personal credit reports.

Approval considers the business’s age, revenue stability, and profitability, alongside the owner’s personal credit history. A strong personal credit score, typically above 680, can improve approval odds, especially for newer businesses without extensive business credit history. Issuers also assess industry risk and the applicant’s financial health to determine limits and terms.