When it comes to financing your small business, you might be unsure about the advantages of using a business credit card instead of a personal one. Surprisingly, research from the U.S. Small Business Administration reveals that nearly twice as many small business owners choose personal credit cards over business ones. Although business credit cards often come with higher fees, they can offer substantial benefits if used wisely. Let’s explore the differences between business and personal credit cards so you can make an informed decision for your small business.
Purchasing Power
Business expenses are typically larger than personal expenses, so it’s logical that business credit cards generally have higher spending limits to accommodate this. This is especially helpful for emergencies and managing cash flow fluctuations. However, it’s crucial to borrow responsibly and avoid overspending in the hope of generating income, as this can lead to debt.
Business Credit History
Many people are unaware that personal and business credit profiles are separate. Using a personal credit card for business expenses won’t help you establish a business credit history. Business credit card issuers report data to business credit agencies like Equifax Small Business, Experian Business, or Dun & Bradstreet. Over time, using a business credit card can help you build a solid credit profile and score for your business.
Protecting Your Personal Credit
Having a high balance on a personal credit card can negatively impact your personal credit score. Since business expenses are typically higher, using a personal card for business expenses can potentially harm your personal credit. Opting for a business credit card with a higher limit can help safeguard your personal credit score. Additionally, business credit card activity is not reported to personal credit bureaus unless the account becomes delinquent. Thus, using a business credit card helps protect your personal finances.
Separate Records
Mixing business and personal bank accounts is a common mistake among small business owners. By using a business credit card, you automatically create a separate record of transactions, eliminating the need to sort through statements later on to identify business-related expenses. Having separate records also enhances your credibility with investors and lenders, who view well-organized financial records more favorably.
Rewards
Many business credit cards offer appealing rewards specifically tailored to the needs of small business owners. Strategically using your business card can earn you significant rewards such as air miles, points, or cash back, resulting in substantial savings. Business credit cards often come with attractive welcome bonuses as well. With careful card usage, you can easily offset the annual fee.
Additional Features
Business credit cards often provide additional features designed to meet the needs of business owners, such as:
- Employee cards, often at no additional cost
- Business travel perks
- Cash back or bonus miles on business expenses
- Year-end summaries
- Vendor payment services
When choosing a business credit card, consider these features and determine which ones will benefit your business the most.
In summary, there are numerous advantages to using a business credit card instead of a personal one. Business credit cards offer more enticing rewards, help you establish a business credit history, and keep your finances organized. They are also valuable for managing cash flow issues that may exceed your personal credit limit. Lastly, using a business credit card demonstrates that you take your business seriously rather than treating it as a casual endeavor.
