A Business Credit Card can help you grow your small business. I have included information here that should be helpful for the business owner to understand how a business credit card differs from a personal card, and which credit cards are best for a small business. Feel free to read it in its entirety or choose the sections from the Table of Contents below that are of interest to you.
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This article will cover the 3 topics below including answering which credit cards are best for your small business.
1. Why a business credit card is preferred over a personal card for your small business.
2. Use the best business credit cards identified here to build credit history for your small business.
3. With your business credit history, you can apply for other forms of financing to help grow your business.
Why get a business credit card?
Many business owners when starting a new business will opt to use their personal credit card to pay for business related expenses in the interest of time and convenience. Although this approach can be fine for the short term, but as your business grows, you should consider using a business credit card for your business purchases. A business credit card is the best type of credit card for your small business. With a business credit card you can build a business credit history which can help you grow your small business.
Since most consumers are aware of the personal credit cards, here is a remarkable stat on business credit cards: According to Accenture, overall spending on business credit cards in the US will climb to $1.1tn in 2024 from the $625bn spend in 2019.
Below are some of the advantages of using a business credit card (instead of a personal credit card) for business purchases:
- Business credit cards can help you maintain a strict separation between your personal and business finances. Not only will you be able to track business expenses more easily, it will make tax time, as well as maintaining a company budget, much more manageable. With the rise of FinTechs, many of today’s business credit cards today come with user friendly reporting and accounting features that make it easy to migrate credit card purchases reporting from the card issuer sites to the many small-business accounting software programs (like QuickBooks) available today.
- To ensure that your business is on a good sustainable foundation, it also helps if you put restrictions in place to guard against commingling your finances. This ensures that you are personally protected from business liabilities specially if you are operating your business as a corporation or a limited liability company. I will discuss more on why entity types matter later in the article.
- By getting a business credit card for your new business you’ll start to establish a business credit score separate from your personal one. This means that if you make a late payment (goes without saying that you pay on time at all times), your business credit will take the hit instead of your personal credit (there are exceptions – which I’ll discuss later)
- Finally, as you start to establish a business credit profile by using a business credit card for your new business, you’ll build your business’ credibility which will help you to apply for other business financing options with better rates.
How does the business credit card product differ from the personal credit card?
Now that I have discussed why you should get a business credit card for your small business (specially if you are a new business owner), lets discuss how the business credit cards product differ from consumer credit cards:
- As your business grows, you can apply for additional cards for your employees. However, you as the business owner remain responsible for repaying charges on each employee’s card.
- When your business grows and has several employees, you can assign the management of the cards to an Admin to make payments and perform other card maintenance functions, to help you free up your time on running your business.
- In certain cases, your business credit cards may have higher limits. Speaking about limits, most major issuers state that they can underwrite small business credit cards for up to $100k without requiring additional information. However, most new small businesses usually will see a limit between $5k-$25k.
- Card-issuing banks may report credit usage and payment information to both personal and business credit bureaus. This practice varies by issuer.
- One important distinction that is not widely known, is that the business credit cards are not subject to the same consumer protection laws as personal credit cards under the Credit CARD Act of 2009. This means that the card-issuing bank can charge a higher late fee (than the fee allowed by CFPB known as the Safe Harbor fee) or impose a penalty APR after your first late payment. However, some major issuers have chosen to voluntarily extend some or all of the consumer protections under the act to their business credit cards via their cardholder agreements. The level of consumer protection laws applied to business cards are at the discretion of the issuer. Hence, I recommend reading the “pesky” cardholder agreement and terms thoroughly before applying for your business credit card to avoid any unpleasant surprises.
- To be competitive, the major card issuers usually structure their business credit cards to offer rewards and discounts more applicable for small business owners, including benefits on online advertisement expenses, shipping, and office supplies.
What Should You Know Before You Apply for a Business Credit Card?
Know your issuer’s credit-reporting policies
I had briefly touched on this topic earlier. It is helpful to understand how your business credit card will affect your credit scores specially if your business credit goal is to be able to apply for other forms of financing as well (besides credit cards). Having business credit cards that do not report to personal credit can help your personal and business credit ratings.
Unfortunately, each card issuer has different credit-reporting policies. For example, Capital One reports all business credit card activity to consumer (personal) credit bureaus, but Chase and American Express only reports to consumer credit bureaus if your account is more than 60 days delinquent. In the latter case, your personal credit doesn’t benefit from your excellent credit behavior, but you might get penalized for irresponsible credit habits, such as defaulting on your account or making any late payments. Bank of America and Citibank on the other hand, do not report any business card activities to personal credit reports.
If you demonstrate responsible credit behavior with your business credit card, having your personal credit separate from your business credit has advantages. Your business can establish credit in its own name. It also keeps that activity off of your personal credit report. This benefits you particularly when you have to carry a balance and your utilization ratio (your balances outstanding divided by your total credit limit which is recommended to be under 30%) goes up, it will not impact your personal credit score.
Eligibility and requirements
Before you apply for a business credit card, there are a few additional points that you should be aware of. For most small business credit cards, the credit card issuers usually require a personal guarantee, i.e. your personal credit score will be used to make a determination as to whether you can qualify for the business credit card. Make sure you know what credit score you (as an individual) fall into. If you have good personal credit history (and/or business credit) and otherwise meet the issuer’s criteria, you can get a business credit card issued regardless of your business industry. You don’t need to have a storefront, or any major facilities to be issued a business credit card.
Two additional topics usually come up for the business owners before applying for a business credit card:
One is regarding the business’ entity type. Although it’s a good idea to form a separate business entity before applying for a business credit card, it’s not necessary. It’s possible to obtain a business credit card even as a sole proprietor. Therefore, you do not need a Tax ID or EIN number in order to apply for a business. Anyone making a profit can be considered a sole proprietor. This means that you would use your social security number on business card applications as the business’ Tax ID/EIN, along with your own address and phone as the business’ address and phone. Just be diligent to maintain a way to track your business receipts and keep proper records.
To grow your business’ credibility, I however recommend that you do get a Tax ID or EIN which you can easily get for free from the IRS.
The second one is around profitability and time in business. For many major card issuers, your business does not have to be profitable or have a certain number of years that your business has been in existence. The approval process is usually based on your personal credit history and your income.
Having said the above about personal credit history, keep in mind that if your personal credit needs improvement, such that you can’t qualify for an unsecured consumer credit card, you probably will encounter issues in qualifying for a business credit card also unfortunately. You may qualify for a secured credit card instead, which could offer limited access to credit. But don’t despair, with secured credit cards you can rebuild your personal credit history. In time, you’ll move up the credit ladder and qualify for better personal and business credit cards. Please see my articles on building credit and which secured cards you could consider to help you build credit. If on the other hand, you feel that you would be more comfortable with letting the experts help you with credit repair or debt relief, please click here.
Rewards vs Cash
Now that I have gone through the major points to consider when applying for a business credit card, lets now discuss which business credit card for your start up or small business may be right for you.
Many programs reward users with points or miles. You can exchange these for goods and services, including airfare and travel accommodations and sometimes cash and gift cards through the card’s rewards program.
Cash back rewards on the other hand are generally straightforward and easy to use (and as a result favored by many business owners and start-ups). They allow you to earn back a percentage of your spending, usually 1% to 5%, depending on the card and the spending category.
While a cash back program is much easier to understand and manage, in many cases, it’s often possible to get greater rewards value from certain points or rewards cards compared with straight cash back cards. The value you receive really depends on the specific details of the rewards program, and the type of card purchases you make for your business.
Rewards Points Value
When you are ready to redeem your Rewards points, how do you figure out what value of points you are getting with your Rewards card, i.e. which redemption option will give you the most value per point.
Here is how you can evaluate that:
Cash:
If you are able to redeem say, 2500 points for $25 in statement credit, you are getting a 1% point value (25/2500 = 1%).
Gift Cards:
If you are able to redeem say, 8000 points for a $100 gift card, you are getting a 1.25% point value (100/8000 = 1.25%).
Air Travel:
If you are able to redeem say, 30,000 points for a $450 air ticket, you are getting a 1.5% point value (450/30,000 = 1.5%).
From the above choices in our example, you get the most value when you redeem your points for air travel and the least value when you redeem for cash. Hence, it is necessary for you to know about the redemption options available with your Rewards card before redeeming your points.
You’ll want to choose the card that best fits the needs of your small business. If you’re required to travel often, for example, you might want to go with a card that offers great rewards. If you’re looking to manage your cash flow by leveraging the cash back earned from your purchases or if you are looking for simplicity, then cash back cards may be more suitable.
Recommended list of business credit cards
American Express is the largest business card issuer in the small business segment. However, many major issuers have introduced business credit cards with good value proposition to compete with American Express. In addition, some noteworthy FinTechs have entered the business card market to disrupt the status quo. Notable among them are Brex (which we’ll discuss below), Ramp, and Divvy. These cards come with enhanced reporting, and a differentiated value proposition. However, these cards are targeted more towards venture funded starts ups. Also, the jury is still out on whether the rich value propositions offered by the FinTechs can be sustainable for the long term.
I reviewed the offerings from the major business card issuers to select the cards I believe provide value, simplicity and convenience to the business owners. After all, there is nothing “small” in the day-to day running of your small business. Any business credit card program you choose should help you with your running and growing your business.
The below cards were evaluated along the lines of Earnings Potential, Sign-up Bonuses, Annual Fees, FX Fees, Extra Card Fees, Annual Percentage Rate (APR), Cardholder Benefits (particularly around reporting and card management), and finally, whether the issuers voluntarily extend the consumer friendly card rules from Card Act to business cards, to make it to my recommended list.
One additional disclosure about my recommended cards, this site does not earn any commission from recommending the below cards.
Rewards Cards
Ink Business Preferred® Credit Card from Chase
|
Description |
| Earnings Potential | 3X Points (up to $150,000/ yr in travel, business services, internet advertising purchases), otherwise 1X |
| Sign Up Bonus | 100k bonus points after you spend $15,000 on purchases in the first 3 months from account opening |
| Annual Fee | $95 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | 15.99%- 20.99% variable |
| Cardholder Benefits | Significant travel protection (trip cancellation and interruption for up to $5,000 per trip), primary rental car insurance, cell phone insurance (up to $600 per claim) |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (700+) |
| Overall Assessment | Lucrative welcome (sign up) bonus. Cardmembers also have the option to redeem points to book travel through Chase Ultimate Rewards with a 25% bonus, which would increase the value of 450,000 points to $5,625. The rewards points can be transferred to 13 airline partners and hotel partners or redeemed directly for travel at a rate of 1.25 cents per point through Chase Ultimate Rewards. This rewards card has a decent differentiation in the business card space. |
Capital One® Spark® Miles for Business
|
Description |
| Earnings Potential | 2 Miles per $1 on every purchase, everywhere |
| Sign Up Bonus | 50,000 Miles ($500 value) once you spend $4,500 on purchases within 3 months from account opening |
| Annual Fee | $0 (Year 1), thereafter $95 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | 20.99% variable |
| Cardholder Benefits | Account Management tools for managing purchase records |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (700+) |
| Overall Assessment | Unlike many business credit cards for travel, you don’t need to spend money on travel related expenses to rack up the rewards with this card—you can earn a healthy amount of miles with everyday purchases. Miles earned can be transferred to more than a dozen airline partners. |
Blue Business® Plus Credit Card from American Express
|
Description |
| Earnings Potential | 2X Membership Rewards Points (up to $50,000/ yr in purchases), otherwise 1X |
| Sign Up Bonus | Up to $300 in Statement Credit from purchases at selected merchants |
| Annual Fee | $0 |
| FX Fee | 2.7% |
| Extra Card Fee | $0 |
| APR | 0% for 12 mo, 13.24%-19.24% variable thereafter |
| Cardholder Benefits | Amex Business App for Receipt Management |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (700-749) |
| Overall Assessment | Good 2% earn card with no annual fees, suitable for businesses spending under $50,000/yr. |
Bank of America® Business Advantage Travel Rewards World
|
Description |
| Earnings Potential | 3x rewards points for every dollar you spend on travel booked through the Bank of America Travel Center and 1.5 points for every dollar spent everywhere else |
| Sign Up Bonus | 30,000 points if you spend $3,000 within the first 90 days of opening your account |
| Annual Fee | $0 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | 0% for the first 9 billing cycles, 12.24%- 22.24% variable thereafter |
| Cardholder Benefits | Cash Flow Management Tools including downloading into Quickbooks |
| Card Act Consideration | 100% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (750+) |
| Overall Assessment | If you qualify for the Preferred Rewards program, you’ll earn more points—2.62 for every dollar spent and 4.12 for every dollar spent on travel through Bank of America. One caveat with this card is that your points redeemed as a statement credit for travel are worth a flat 1 cent each, but when you redeem for cash back, your points are only worth 0.6 cents each (meaning 2,500 points equate to only $15). Gift card redemption rates vary. This limits your redemption options and somewhat puts this card at a disadvantage with the other business cards that offer more flexibility. |
Cash Back Cards
The Capital One® Spark® Cash for Business
|
Description |
| Earnings Potential | Earn uncapped 2% cash back on all business purchases. |
| Sign Up Bonus | $500 bonus once you spend $4,500 on purchases within 3 months from account opening |
| Annual Fee | $0 (Year 1), thereafter $95 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | 20.99% variable |
| Cardholder Benefits | Account Management tools for managing purchase records |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Good/Excellent (700+) |
| Overall Assessment | To offset the $95 annual fee, a cardmember would have to spend at least $4,750 on the card each year, so this card makes sense if you spend at least that amount per year on the card. |
Ink Business Unlimited® from Chase
|
Description |
| Earnings Potential | Unlimited 1.5% cash back on every purchase |
| Sign Up Bonus | $500 bonus after spending $3,000 on purchases in the first 3 months after account opening |
| Annual Fee | $0 |
| FX Fee | 3% |
| Extra Card Fee | $0 |
| APR | 0% for 12 months, 13.24% – 19.24% variable thereafter |
| Cardholder Benefits | Account management tools with integration capability with bookkeeping software tools |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (700+) |
| Overall Assessment | Of the best business credit cards for startups/new business, this is one of my favorite for new business owners as this is one of the most simple, straightforward, and cost-effective choices. |
American Express Blue Business Cash™ Card |
Description |
| Earnings Potential | 2X earn on up to $50,000 annual spend, 1X all else |
| Sign Up Bonus | Up to $300 in Statement Credit from purchases at selected merchants |
| Annual Fee | $0 |
| FX Fee | 2.7% |
| Extra Card Fee | $0 |
| APR | 0% for 12 mo, 13.24%-19.24% variable thereafter |
| Cardholder Benefits | Expense management tools to track and organize expenses |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Good/Excellent (660+) |
| Overall Assessment | Good 2% earn card with no annual fees, suitable for businesses spending under $50,000/yr. Cash back is applied automatically. |
Bank of America® Business Advantage Cash Rewards
|
Description |
| Earnings Potential | 3% cash back in the category of your choice, 2% on dining, 1% all else (3% and 2% cash back are on the first $50,000 annual purchases) |
| Sign Up Bonus | $300 statement credit after making $3000 in net purchases within 90 days of account open |
| Annual Fee | $0 |
| FX Fee | 3% |
| Extra Card Fee | $0 |
| APR | 0% for 9 months, 12.24% – 22.24% variable thereafter |
| Cardholder Benefits | Cash flow management tools |
| Card Act Consideration | 100% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent (700+) |
| Overall Assessment | As your business grows, you may be able to qualify for the Preferred Rewards program with Bank of America, which will increase your cash back earnings to 5.25%, 3.5% and unlimited 1.75%. |
The Plum Card® from American Express
|
Description |
| Earnings Potential | Unlimited 1.5% cash back on every purchase with no cap if you pay early. |
| Sign Up Bonus | N/A |
| Annual Fee | $0 (Year 1), then $250 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | N/A |
| Cardholder Benefits | American Express Business App to manage card receipts |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Excellent/Good (660+) |
| Overall Assessment | With a sizable annual fee after the first year, this Amex card might not be right for all startups—but if you’ll be making larger purchases, taking advantage of a high limit business credit card, and earning 1.5% cash back by paying early to offset this cost, it’s certainly worth considering. Take up to 60 days to pay your balance. |
Cash Back Card for Fair Credit:
Capital One® Spark® Classic for Business
|
Description |
| Earnings Potential | 1% cash back on all purchases |
| Sign Up Bonus | None |
| Annual Fee | $0 |
| FX Fee | None |
| Extra Card Fee | $0 |
| APR | 26.99% variable |
| Cardholder Benefits | Securely download your purchase records into multiple formats including Quicken®, QuickBooks® and Excel®. |
| Card Act Consideration | 60% of Card Act consumer card rules apply to business card |
| Credit Score Required (min) | Fair (625+) |
| Overall Assessment | Build and strengthen credit for your business by using this credit card responsibly |
Business Charge Cards
For business owners who may be hesitant to use credit because they are afraid they will be tempted to run up debt (or maybe familiar with American Express Charge cards like the Platinum, Green, and Gold cards), a charge card can be the best business credit card option for such cases. Charge cards must be paid in full each month, making it a good alternative to business credit cards for startups (i.e. credit cards allow you to carry a balance from month to month). Since credit cards offer the additional flexibility of carrying a balance I prefer that option over charge cards. If you would rather explore a charge card option, below are the recommended charge card options:
Brex Card for Startups
|
Description |
| Earnings Potential | 7X on Rideshare, 4X Travel, 3X Dining, 2X Recurring Software, 1X all else |
| Sign Up Bonus | For a limited time, get 75,000 Brex Rewards points upon sign up, and waived card fees for life. |
| Annual Fee | $0 |
| FX Fee | None |
| Extra Card Fee | $0 for up to 5 cards, more than 5 cards cost $5 per user per month |
| APR | N/A |
| Cardholder Benefits | Brex offers discounts and savings on a number of services such as credits with Google Ads, and Amazon Web Services etc. |
| Card Act Consideration | N/A |
| Credit Score Required (min) | N/A |
| Overall Assessment | Perfect for tech companies and early-stage corporations with professional funding (U.S. EIN, and at least $100,000 funds in corporate bank account required)
No personal guarantee and no impact on your personal credit score. If you don’t want to risk your personal finances or rely on your personal credit score, Brex may be a great option. Brex will also report your payments to business credit bureaus, so you can build business credit while using this startup card. Points can be transferred to one of Brex’s airline partners. |
If you are not eligible for the Brex card option, you can consider the Business Green Rewards Card from American Express. You earn one Membership Rewards® point for each dollar you spend on eligible purchases. You earn double Membership Rewards® points for each dollar of eligible purchases made when you book on the American Express Travel website. Lower annual fee than other charge cards: $0 introductory annual fee for the first year, then $95.
The rewards structure is not as strong as Brex and there is a foreign transaction fee.
Useful information for new business owners – building your business credit history
As mentioned before, business credit cards can help you build your business’ credit history. Here’s a brief synopsis of how business credit history is built and how business credit score can be improved (although some of this information may not be fully applicable for you in the beginning of your new business journey, it maybe helpful for you to know as a business owner). Just as most of us have a personal FICO score, established businesses generally have one or more business credit scores that lenders use. Business credit scores generally range from zero to 100, with higher scores going to more creditworthy companies. Scores vary from credit bureau to credit bureau (similar to how your personal scores from Experian may vary from Transunion scores etc).
Your business creditors will report your payment history to one or more business credit bureaus, which collect your outstanding balance and payment history from the following types of sources:
- Banks (including Business credit card issuers)
- Vendors that provide merchandise or inventory before payment
- Trade associations and organizations
To establish a separate credit history for your business, as discussed earlier, select a credit card issuer that reports your credit activity specifically to the business credit bureaus. One of the most prominent business credit bureaus is Dun & Bradstreet, the developers and proprietors of the PAYDEX score. This score compares businesses’ payment histories on credit accounts to credit terms and rewards businesses for paying early. According to Dun & Bradstreet, companies that have a track record of not only paying credit accounts on time but also paying them 30 days or more ahead of schedule have the highest scores.
Like most other business credit scores, the PAYDEX score ranges from zero to 100, which Dun & Bradstreet characterizes as the following:
|
0-49 |
50-79 | 80-100 |
| Significant to high risk of missed credit payments or default | Risk of late or missed payments on debts is moderate |
Good to excellent business credit and payment history and outlook; risk of future late payments or defaults low |
Other notable business credit bureaus include Equifax, FICO SBSS and Experian, with each maintaining a business-specific database (and selling credit background screening to lenders of all types). All major business credit card issuers (American Express, Chase etc) report information to at least one business credit bureau.
Please note that some card issuers will report all activity on business credit cards to your personal credit report (as mentioned earlier). This can be good if your personal credit is weak, and you are building credit history with on-time payments. But the disadvantage to this reporting is that it can damage your personal credit if you’re not managing your business credit responsibly. Unless, you are looking to improve your personal credit score, I would lean towards the business credit cards that do not impact your personal credit history.
Once you’ve established a business credit profile, the rules change. But until then, keep maintaining a spotless personal credit report and a good FICO score.
Improving your business credit score
Just as you should be diligent to protect your personal credit score and ensure that the information in your credit report is accurate, you should do the same with your business credit score.
- Pay all bills and invoices on time and preferably early. As you can guess, this is the single most important factor in most commercially marketed credit-scoring systems that lenders use.
- Limit how much debt your business takes on.
- Obtain an Employer Identification Number, or EIN, from the IRS, and form a corporation or an LLC.
- Check your business credit history for errors before applying for further credit.
Closing Thoughts
- Business credit cards can help business owners manage their business purchases more efficiently. There are several advantages to using the business credit card over a personal credit card for your new business including reporting and tax planning.
- Interest rates on business credit cards are usually high compared with the rates of some other forms of financing, such as personal loans from a traditional bank. Credit cards can be used for short term borrowing but are not meant to be long-term loans because credit cards usually have higher interest rates. You can borrow personal loans (if your business is new) instead for mid to long term borrowing needs. For business loan options from nav.com click here.
- Do your best to pay off purchases before the end of the grace period. Carrying a balance effectively wipes out your rewards. If you are experiencing serious cash flow issues, then take a look at other options before using your credit card for financing. Developing a solid business plan can help manage your borrowing.
- Over time, as your business demonstrates responsible credit usage and you have settled on an entity type, you start building a business credit history which helps you establish credit history separate from your personal credit, and this helps your approval odds for other forms of financing for growing your business.
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Sources used: federalreserve.org, nav.com, usnews.com, forbes.com, thepointsguy.com
The information for the above credit cards has been collected independently by Credit and Cents. The card details on the above pages have not been reviewed or provided by the card issuers.
