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Essential Small Business Know-How: Do I Need a Business Credit Card?

Business owner holding up his credit card
January 30, 2024 | Article | 3 min | Business Insights

Between costs like rent, inventory, and payroll, it can be hard for businesses to cover expenses. Even if you have enough cash on hand to fulfill your obligations, an unexpected cost could derail your operation. Could a business credit card help?

High interest rates might make you hesitant to open up a credit card for your business; however, obtaining a business card can be advantageous in certain circumstances. But before determining if this financial tool is right for your business, you first need to know its ins and outs.

Business owner researching a small business credit card

Why Should a Small Business Have a Credit Card?

The idea of charging up an open line of credit might make you recoil. However, the smart use of a business card has been known to be an excellent financial vehicle for some small business owners.

For instance, a business credit card may help you separate your personal and professional finances. This, in turn, may enable you to start building a healthy credit score for your business. Typically, a well-established credit history helps to reduce financing costs.

Do you plan to scale your business in the future? If so, then you may want to consider building up its credit score now. Doing so might help you get more favorable terms on future loans.

Credit card companies often offer small business accounts various perks and rewards specifically tailored to their business needs. Think cash back on business-related purchases or discounts with partner companies.

Finally, a business credit card may be an opportunity to improve your cash flow. Typically, business owners will have a line of credit to cover expenses that can’t be paid with a credit card such as payroll or leases. A business credit card’s grace period might also make it easier for you to navigate the gaps between outgoing expenses and incoming revenue.

Commingling: Using a Regular Credit Card for Business

Yes, you can use your personal credit card for business expenses. But the real question is, should you?

The answer depends on what your individual goals are for your business. Business credit cards sometimes offer perks and benefits that their personal counterparts don’t; these perks may come in the form of travel rewards or cash-back for business-related purchases.

However, there are other, less immediately apparent benefits as well. Namely, separating your personal and professional finances has the potential to help you organize your accounting more effectively.

At the same time, separating your business and personal finances can make it easier to prepare both personal and business taxes. Plus, the resulting accounting is often less accurate than purely professionally managed business accounts, as your individual expenses don’t mix in with company expenditures. In fact, when you commingle your business and individual finances, you’re potentially “piercing the veil” of protection that your business’s legal entity offers. You may then be held personally liable for your business’s debts or lawsuits.

In short, without separate business and personal accounts, you’re running a legal risk at the same time you’re increasing your error margins for accounting procedures.

Person using her card to make a purchase with a vendor

How to Safeguard Working Capital Against Fraud With a Business Credit Card

Small businesses are frequently targeted for debit card scams because they often don’t have the security infrastructure of larger organizations. A business credit card can help limit your liability in the event your business credit card is used without your permission.

However, there are still a few best practices you should follow even after switching to a business card that can further minimize your exposure to security concerns.

It’s generally a good idea to regularly review your statements for any suspicious activity. Doing so may help you catch fraudulent charges as early as possible. If you do happen to spot a suspicious transaction, it may be best to freeze the card immediately to prevent further theft.

In addition, certain employees are authorized to make purchases on the business’s behalf, it might be wise to get them their own card tied to the company account. This way, statements are readily available for you to review. Employee misuse is a potentially serious risk—so it’s important to have oversight over all expenses charged to your business account.

Know Before You Go: How to Apply for a Business Credit Card

When considering applying for a business credit card, it's important to start by assessing your eligibility. Key factors include your annual business revenue and average monthly expenditure, which give banks an insight into the financial health of your business. Additionally, your personal credit score plays a significant role in the evaluation process, with a higher score generally being more favorable.

Before you apply, make sure to gather all the required information and documents. This includes details about your business, such as its legal name, industry type, legal structure, time in business, number of employees, and Federal Tax ID or Employer Identification Number (EIN). You'll also need to provide personal details, including your contact information, and Social Security Number (SSN), along with financial information like your annual business revenue, average monthly spend, and total annual income.

Business man using his small business credit card to make a purchase

It's also advisable to thoroughly evaluate your credit card options. Look for cards that align with your business needs, considering factors such as annual fees, reward programs, interest rates, and additional benefits. For businesses that involve frequent travel, a card offering travel-related perks might be ideal. Pay close attention to the details of each card, including the terms and conditions, to ensure it suits your business requirements.

Finally, when you're ready to apply, the application process will generally require you to provide the information you've gathered. The process may vary slightly between different banks, but accuracy in filling out the application is key to avoiding any potential delays or issues. By ensuring you have all the necessary information at hand and understanding the requirements, you'll be better prepared to select and apply for a business credit card that meets your business's needs and financial situation.

What Type of Business Credit Card Should I Apply For?

It’s important to understand that there are several different types of business credit cards. The right one for you will depend on your unique situation.

For example, cash-back business cards offer a small percentage of cash back on every purchase. Some may even offer a higher percentage back for specific types of purchases, such as office supplies or utilities. So, if you can find a business card that offers high cash-back rewards for the types of purchases you often make in your line of work, then you could potentially see significant cost savings.

On the other hand, travel business cards provide miles or points for related purchases that can cut down on future expenses. Businesses that require extensive travel tend to be able to save the most by choosing a credit card tailored to travel rewards.

In addition, some cards are specifically designed to improve your cash flow—like Arizona Bank & Trust’s Small Business Card. On top of offering 0% APR for 12 months and no annual fee, the card lets you leverage early vendor payment terms to extend your accounts payable (AP) cycle.

Business man using his card to make a transaction

Still Have Questions? Turn to a Financial Partner

Business credit cards have the potential to streamline your financial management. They also provide rewards that can be customized to your specific business needs. But selecting the best card for your business may take careful consideration. In general, features, benefits, and costs can all make a difference when you’re choosing between cards.

To start, you may want to consider looking at options that are tailored to businesses. Reach out to a commercial banker at Minnesota Bank & Trust, a division of HTLF Bank today to start a conversation and explore your options.

Our Commercial Banking Team is ready to help your business grow.