Banking and Credit

Should You Get a Business Credit Card? Consider These 5 Tips First

By  Opher Ganel

Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.

As a small business owner, you need a credit card. Whether it’s to pay for extra memory in that sleek new smartphone, place orders on Amazon, or just so you don’t have to carry a lot of cash or an unwieldy checkbook to the store when you buy supplies. The question is, should you use a personal credit card or get a business credit card?

Here are five things to remember about using a credit card for your business to help you choose.

1. Separating business credit transactions doesn’t require a business credit card

Americans usually have more than one card. According to Credit Karma, the average number of cards carried by Americans is between 2 and 3. Credit Karma members have an average of nearly 5. This means you can take an existing card, pay off the balance on it, and start using it for business.

2. Using credit cards simplifies your tax reporting no matter the type of card

First, your card statements give you a record of transactions even if you lose receipts. Second, paying with a card reduces the number of Forms 1099 you need to send out at the end of the year. Say you paid more than $600 to the company that cleans your offices. If you charged it, the card issuer will send them a Form 1099, so you don’t need to.

3. Get rewards for business spending even if using a consumer credit card

Business expenses are a fact of life. You have to spend money to make money. However, if you use a credit card that offers, say, a 2% reward, and you charge an average of $5000 a month, you’ll get an average of $100 a month back on those deductible expenses. Sweet! This is just as true using a consumer credit card with rewards as a business credit card.

4. Business credit cards are often linked to your personal credit and hold you personally liable

Setting up your business as an LLC or S-corp protects you from business creditors. This means that if you default on paying the minimum payments to your business card or loan, the creditor should be limited to going after your business assets. This is true unless in the small print they got you to add yourself as personally liable for any balance owed. In that case, being late on payments will still ding your personal credit score.

5. The Credit CARD Act doesn’t protect your business credit card

The 2009 Credit Card Accountability Responsibility and Disclosure Act stopped some of the worst abuses heaped by credit card issuers on consumers. However, this doesn’t apply to business credit cards. The small print of such cards’ agreements often hides a bunch of traps for the unwary. Most business credit card contracts allow issuers to do things like:

  • Change terms at any time, including raising rates on balances you already owe
  • Apply penalty interest rates without notice for any violation
  • Apply penalty fees that can be far in excess of the value of your violations

What You Should Do When Choosing a Credit Card for Your Business

In my opinion, if you’re like most small business owners, it’s best to dedicate a consumer credit card for use in your business. the Credit CARD Act protects such cards, so the small print likely hides far fewer “gotchas.”

However, my opinion is far from universal. Cady North, CFP®, CEO and Financial Advisor at North Financial Advisors, for example, disagrees.

She says, “I have a different take on business credit cards. They’re better than consumer cards for a couple of reasons. First, you can start building a credit profile for your business. Some issuers will issue the card using your business tax ID, and while they may use your personal credit to initially approve you, they don’t report payments, credit line use, etc. on your personal credit report.  

“Additionally, when starting a business, every dollar counts, and some business card issuers offer better sign-on bonuses and ongoing rebates for commonly purchased business products (e.g., FedEx/Staples, mobile phone bills, computers, etc.). They also typically offer a longer period of introductory 0% interest financing to help get a business through 6-12 months of start-up expenses.”

There you have it – as in most things in life, there are pros and cons to each choice you can make. The question is, which option’s pros are most compelling in your specific situation relative to that option’s cons?

Consider these three things if you have your eye on a business credit card that offers seemingly great perks and rewards.

1. Are the requirements to cash in on those special offers ones you can easily meet (and are they worth it)?

2. Are there annual fees, and if so, do the benefits of the specific card outweigh that cost?

3. Does the small print hold you personally liable for charges on the card?

If you still decide to go this route, choose the best business credit card you can qualify for (NerdWallet offers a useful list), read the fine print carefully, and set up a system to pay off the card in full each month, even if you have to cover it from another source such as putting money into your business account from your personal checking.

Disclaimer: This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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About the Author

Opher Ganel

My career has had many unpredictable twists and turns. A MSc in theoretical physics, PhD in experimental high-energy physics, postdoc in particle detector R&D, research position in experimental cosmic-ray physics (including a couple of visits to Antarctica), a brief stint at a small engineering services company supporting NASA, followed by starting my own small consulting practice supporting NASA projects and programs. Along the way, I started other micro businesses and helped my wife start and grow her own Marriage and Family Therapy practice. Now, I use all these experiences to also offer financial strategy services to help independent professionals achieve their personal and business finance goals.

Connect with me on my own site: OpherGanel.com and/or follow my Medium publication: medium.com/financial-strategy/.

Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.