Business Credit

When it Comes to Business Credit Cards, the Details Matter

A business credit card can be a powerful tool for small business owners looking to access capital, earn rewards, and lay a foundation for growth. These cards have become increasingly popular, with many banks and card issuers offering accounts tailored to small businesses. However, not all business credit cards are created equal. Prior to opening an account, business owners need to do their due diligence to try and find a card that aligns with the financial goals and realities of their company.

Benefits of Business Credit Cards

Why are business credit cards popular? Here are some of the potential benefits:

  • Access to capital: Enabling business owners to charge purchases and pay them off over time, along with applicable interest, can help them manage cash flow. Bank loans or lines of credit aren’t always available to small businesses, so many use their credit cards for purchases.
  • Saving money with rewards: Many card issuers offer rewards in the form of cashback, airline miles, and savings when you spend a certain amount. Where these rewards can be used depends on the program, but they’re often tailored to the needs of small businesses.
  • Building business credit: A new business may not have enough payment experiences to establish a business credit file. Some card issuers report payment histories to companies like Dun & Bradstreet, allowing small businesses to begin building business credit. We’ll discuss this in detail a bit later.

How to Find the Best Business Credit Card for Your Company

Deciding which business credit card to apply for isn’t as simple as going with a name you trust. These cards can help your business free up cash flow and save money with perks, but the wrong card might leave you disappointed on both counts. What are some of the most important factors to consider when searching for a business credit card?

The annual percentage rate, or APR, determines how much interest you’ll pay on purchases. Many business credit cards carry higher interest rates than their consumer counterparts. Since business credit cards are often unsecured (meaning no asset is attached to them in case of default) and used to make costly purchases, issuers may charge more to protect against losses. A business credit card’s APR is one of the most important considerations when shopping around as it can literally cost you money down the road.

Many small business owners look at the rewards offered by various business credit cards when deciding. Savings can really add up, and may be delivered in the form of cashback, airline miles, or discounts at participating retailers. It’s a good idea to compare rewards programs before applying for a card to determine whether the benefits are generous enough and apply to goods or services your business uses.

You may also want to seek out reviews from other business owners, whether online or in person, to learn about their experiences with a specific card. A little bit of research could prevent you from making a mistake.

Personal Guarantees for Business Credit Cards

Many small business owners apply for business credit cards because other financing solutions aren’t available to them. One reason for this may be that they haven’t built enough business credit to satisfy some traditional lenders. This isn’t usually an issue for business credit card issuers. Instead, they’ll often look to the applicant’s personal credit file for guidance.

The connection between the business credit card and applicant goes deeper than this. In almost every case, the applicant needs to agree to a personal guarantee, putting them on the hook for any unpaid debts on the card.

This personal guarantee is separate from the business structure of a company. Even if a company exists as a separate entity, the personal guarantee associated with a business credit card means the issuer can come after the applicant to be made whole. That, in turn, can affect their personal credit file. This liability is just one reason it’s important to stay within your means when using a business credit card.

How are Credit Limits Set?

Business credit cards often have higher credit limits than their consumer counterparts. Lenders know that small businesses have substantial costs including equipment, materials, and inventory. As such, a qualified applicant can usually access a fairly high credit limit right off the bat.

The credit limit on your business credit card is determined by many factors. As previously discussed, the lender will probably look at the applicant’s personal credit scores to see how they’ve handled debts in the past. They’ll also ask for information about your business’s costs and earnings, along with comparable details for the industry at large.

What can you do if the credit limit is too low for your needs? First, consider whether you can handle the increased debt load that could accompany a higher credit limit. There’s likely a reason the lender set it below your expectations; they might be wrong, but you may also be setting yourself up for more debt than your business can handle.

If you’re confident that a higher credit limit is prudent, it may help to utilize the card for a few months to demonstrate financial responsibility to the card issuer. Once you have a short history of on-time payments you can contact them and ask for a higher credit limit. They’re under no obligation to agree, but it’s one avenue to pursue.

Do Business Credit Cards Impact Your Business Credit File?

A business credit card can help you establish business credit, but there are several caveats. Credit card agencies may not report to all the major business credit bureaus, and which companies report to which bureaus is confidential. To complicate matters, some business credit card issuers that submit information may only pass along negative experiences like late payments. Consider asking for details on what, if anything, is reported to business credit bureaus. Assuming your card issuer does pass along payment experiences, using a business credit card may impact your business credit scores and ratings.

Getting a business credit card can be a smart move. Spending time researching cards and considering your company’s financial needs are important steps to finding the right one. Don’t be taken in by marketing—this is about doing what’s best to help your small business grow.

The opinions and information provided by Dun & Bradstreet in articles and blog posts (collectively the “Information”) are provided “as-is”. Nothing stated or implied in the Information should be construed to be legal, tax, or professional advice. Dun & Bradstreet makes no representations or warranties, express or implied, with respect to such Information and the results of the use or reliance on such Information. Please contact an attorney or finance professional if you are in need of legal or financial advice.

Explore Our Solutions

Manage My Business CreditBuild and monitor your company’s business credit fileLearn More
Monitor Another Company’s Credit FileAssess the risk of doing business with othersLearn More