What Is a Business Credit Card and How Does It Work?
Understand what a business credit card is, how it works for your company, and what's involved in getting one.
A business credit card serves as a financial instrument specifically tailored for commercial entities, providing access to credit for operational expenditures. This tool helps businesses manage cash flow, fund daily operations, and separate professional spending from personal finances.
Definition and Distinctions
A business credit card is designed for use by a business, not for personal expenditures. It functions like a personal credit card, offering a revolving line of credit for purchases and repayment over time. Its primary distinction is its exclusive use for business expenses, aiding in clearer financial record-keeping for tax and accounting.
Most small business credit cards require a personal guarantee from the owner, making the individual responsible for the debt if the business defaults. This differs from some corporate credit cards, where the company itself holds liability.
While personal credit cards always report to consumer credit bureaus, business credit cards typically report to business credit bureaus. However, negative activity with a personal guarantee can still impact an owner’s personal credit score.
The legal structure of a business influences card usage, with cards available for sole proprietorships, LLCs, and corporations. Separating finances through a business card simplifies bookkeeping and offers legal protection for personal assets by distinguishing business activity.
Common Features
Business credit cards offer higher spending limits than personal cards, accommodating larger operational expenses. Limits reflect the business’s revenue and creditworthiness. Some cards offer no preset spending limits for businesses with robust cash flow.
Issuers provide employee cards, allowing additional users to make purchases. These cards often include customizable spending controls, enabling owners to set individual transaction limits, restrict categories, or define monthly caps. This provides enhanced visibility and control over team expenditures.
Many business credit cards include expense tracking and reporting tools, accessible through online dashboards or mobile applications. These tools categorize expenses, monitor spending, and simplify reconciliation. They streamline financial management by providing insights into company spending.
Rewards programs align with business spending patterns, offering cashback on business purchases like office supplies or advertising, or providing travel points and miles. Some cards offer sign-up bonuses, extended interest-free periods, or discounts on business services. Many cards integrate with accounting software like QuickBooks, automating data transfer and streamlining record-keeping.
Eligibility and Application
Eligibility depends on the business’s legal structure, age, revenue, and the applicant’s personal credit score. Sole proprietors, freelancers, LLCs, and corporations can qualify if they demonstrate independent income generation.
Most issuers require a good to excellent personal credit score, especially for newer businesses lacking established credit history.
Applicants provide specific information and documentation, including the legal business name, address, industry type, and annual revenue. A federal tax identification number (EIN) is typically requested, but sole proprietors can use their Social Security Number (SSN) if an EIN is unavailable. Personal details like name, date of birth, SSN, and contact information are standard for identity verification and credit checks.
The application process can be completed online. After submission, issuers conduct credit checks, typically involving a hard inquiry on the applicant’s personal credit report. Approval decisions can be immediate or take several business days. Approved applicants receive their physical card within a week to ten business days; virtual cards may be available sooner.