Business Credit Card

Business credit cards can be a very useful tool for your company. They can help you establish and build a solid business credit profile and also be a source of financing for needed expenses and purchases.

When considering which credit card to apply for, it is important to understand the terms and conditions, as well as any “bonus” features associated with each credit card.

If you do not initially qualify for an unsecured business credit card, it is a good idea to consider opening a secured business credit card for a short amount of time. Despite the drawbacks, secured accounts are an excellent way to build business credit.

One of the first sources of business credit that a company can usually qualify for is a business credit card. While these cards can be very useful when it comes to charging travel and business meals, they can also be used to finance the purchase of needed equipment and even get cash advances when cash flow is tight.

In addition to using credit cards to finance the items and services that a business needs, they are also an excellent way to strengthen a company's business credit rating. Since most major credit card companies report spending and payment histories to D&B and the other credit rating bureaus, every purchase and payment increases the credit history of a company and its potential credit score.

When qualifying for a business credit card, the process is similar to qualifying for a bank loan. The credit card company may approve the credit based solely on the credit history of the business, or it may use a combination of the business credit history and the owner's personal credit history. Ultimately, the goal is to have the business apply and qualify for credit cards without the use of the owner’s personal guarantee.

Business vs. Personal Credit Cards

During the early stages of establishing a company, many business owners use their personal credit cards to finance needed purchases and payments. Statistics show that over 65% off all small businesses use credit cards on a regular basis; however, less than half of those credit cards are actually in the business name. The others continue to use the owner’s personal credit cards for business transactions.

Using personal credit cards for business purchases is fine early on, but once the business is established, it is important to think about getting business credit cards in the name of the company. According to the 2003 U.S. Census Bureau statistics, over one third of businesses with 20 employees have company credit cards. There are many reasons why it is important to use business credit cards for business purposes and to stop using personal credit:

• Building Business Credit : If a company continues to use the personal credit cards of the owner, it will not ever build separate business credit. Only by making purchases and payments on a business credit card will a company strengthen its credit rating.
• Increased Credit Limits : Often times the limits on personal credit cards are significantly lower than those of business credit cards. So if a business has to rely on the personal credit cards of the owner, it may not be able to finance the purchases that the business needs. For instance, if a business qualified for a credit card with a limit of $25,000, the business owner would have much more spending power to finance purchases the company needs than if he had to use his personal credit card which may only have a limit of $10,000.
• Bookkeeping and Tax Issues : If a business uses the owner's personal credit cards for business purposes, it can potentially create accounting and tax problems. For example, you may be prevented from writing off the interest paid on personal credit cards if they are used to purchase items for the business. Personal tax deductions for interest expenses are considered miscellaneous itemized business expenses and can only be deducted if the total exceeds 2% of the adjusted gross income.

When you acquire a business credit card, it is issued in the name of the company, but it may also include the name of the person authorized to make charges on the account. For example:

ABC Corporation
John Smith

While there may or may not be a charge for each card issued, typically a credit card company will issue a separate credit card for each employee that is authorized to make charges on the account. Often businesses separate their spending on different business credit cards for different purposes. For example, one credit card may be used solely for expenses related to travel and entertainment (T&E) whereas the other may be used for miscellaneous purchases related to the day-to-day operations of the company.

Often times the issuer of a company credit card will call them "corporate cards" regardless of the organizational structure of the company. Even if a business is set up as a sole proprietorship, partnership, or limited liability company (LLC), it can still take advantage of a "corporate" credit card.

In today's economic climate, it is very difficult to operate a company without business credit cards. In many situations, it is a convenient way to make purchases and payments (i.e. online payments on a business account).