Pros and Cons of Business Credit Cards

Quick Answer

Business credit cards can help you manage your business finances, separate personal and business expenses and offer valuable rewards, but they can also have a negative impact on your personal credit score. Here’s how to decide if a business credit card is right for you.

A business owner of a coffee shop doing the bookkeeping and holding a credit card.

Whether you run a fast-growing startup or a part-time side hustle, a business credit card can offer a convenient way to finance business purchases. Business credit cards allow you to easily separate personal and business expenses and often come with valuable business perks, but they might not be for everyone. To help you decide if a business credit card is right for you, here's a closer look at their pros and cons.

Pros of Business Credit Cards

Using business credit cards for business expenses can have several perks.

Keep Business and Personal Expenses Separate

If your business is incorporated, it's important to keep business expenses and finances separate from your personal finances. Combining the two could void the protection your business entity provides and put your personal assets at risk. Running a sole proprietorship or side gig? Using a business credit card rather than a personal credit card helps demonstrate to the IRS that your business is for profit (and entitled to tax deductions) rather than a hobby.

Streamline Your Business Finances

Putting business expenses on a business credit card makes it easy to track your spending. Many business credit cards automatically break your spending into categories such as travel, entertainment or business services, streamlining tax preparation and bookkeeping.

Establish a Business Credit Score

A good business credit score can make it easier to qualify for loans and other types of business credit. Responsibly using a business credit card can help you build a business credit history. Make sure the credit card issuer reports to one or more of the commercial credit bureaus (Experian, Dun & Bradstreet and Equifax). Making timely credit card payments and maintaining a low balance (or ideally, paying your bill in full each month) can help improve your business credit score.

Make Convenient Payments

Business credit cards offer a safer and more convenient way to make purchases than writing checks or carrying cash. You can also typically get business credit cards for your employees to use and set limits on their spending. Although you're ultimately responsible for the bill, giving employees access to company credit cards enables them to easily cover day-to-day expenses such as entertaining clients or fueling up the company car.

Access More Credit

Business credit cards usually have higher credit limits than personal credit cards, giving you more flexibility to make larger business purchases. Using a personal credit card for both business and personal purchases gives you less to spend. It could also push your personal credit utilization over 30%, which can lower your personal credit score.

Manage Cash Flow

As a business owner, you sometimes need to spend money to make money. For example, a retailer might need to buy inventory before the holiday shopping season and not get paid until the items sell. Using a business credit card to finance the purchase provides a grace period before you have to pay the bill. Ideally, you'll have sold the inventory by the time your credit card payment is due, giving you the funds to pay off the balance.

Earn Rewards

Business credit cards often offer rewards in the form of points or cash back. These cards typically earn rewards for business-related purchases, such as internet and cellphone bills, shipping, travel, restaurant meals, gas, advertising or office supplies. Some business credit cards also come with useful perks such as extended warranty or purchase protection on qualifying items purchased with the card, travel emergency assistance and auto rental collision damage waiver coverage.

Cons of Business Credit Cards

There are a few downsides to business credit cards you should consider before applying for one.

Could Negatively Affect Your Personal Credit

Small business credit card issuers may report your account to the three major consumer credit bureaus (Experian, TransUnion and Equifax). Missing payments could damage your personal credit (and your business credit if the card issuer also reports to business credit bureaus).

In addition, getting a business credit card usually requires signing a personal guarantee. If your business runs into financial trouble and can't pay the bills, you'll be expected to make the credit card payments from your personal funds. This could be difficult when your business is struggling.

May Offer Fewer Protections Than Personal Credit Cards

Consumer credit card users are protected by the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act). CARD Act protections include limiting the interest and fees that card issuers can charge you. The CARD Act doesn't apply to small business credit cards, although some business credit card issuers voluntarily comply with CARD Act provisions. Before applying for a business credit card, check the card's terms and conditions for details about fees and interest rates.

High Interest Rates

Small business credit cards usually have higher interest rates than business or personal loans or personal credit cards. As a result, a high balance on your business credit card could quickly accrue a lot of interest that can be tough to pay off.

To avoid paying interest unnecessarily, use business credit cards for purchases you plan to pay off right away. When you need to borrow money and pay it off over a longer term, a business or personal loan may make more financial sense than a business credit card.

Who Should Get a Business Credit Card?

If you make purchases for your business, you may want to consider a business credit card. Unlike corporate credit cards, which are designed for very large companies, business credit cards are an option for companies of all sizes. Owners of sole proprietorships, partnerships, corporations and limited liability corporations (LLCs) can all apply for small business credit cards. Even part-time gig workers and freelancers can benefit from business credit cards.

Wondering if a business credit card makes sense for your side hustle? Consider the business expenses you typically deduct on your income taxes. That might include internet service, computers and a business cellphone for freelance consulting work or gas and car maintenance if you drive for a ride-hailing service. Using a business credit card for these purchases can help you track tax-deductible expenses.

How to Choose a Business Credit Card

To select the business credit card that best fits your needs, consider the following factors:

  • Your spending habits: Tally up your average monthly spending to get an idea of the credit limit you'll need on a business card. Also consider whether any major purchases are on the horizon. For example, if you're planning to buy a new business computer, using a business credit card with an introductory 0% annual percentage rate (APR) could give you more time to pay off the purchase without paying interest.
  • Potential rewards: To find the right business rewards credit card, identify the areas where your business typically spends the most. For instance, if you travel frequently for business, you may get the biggest rewards from a credit card that offers travel points. Review the terms and conditions of various cards to estimate whether you'll spend enough to earn the rewards, and how useful the rewards will be.
  • Interest rate (APR): Business credit cards typically have a variable APR, meaning the interest rate can change from one month to another as the prime rate rises or falls. The APR determines how much interest you'll pay if you carry a balance on your credit card. When you apply for a business credit card, the variable APR is typically expressed as a range. You won't know exactly what your card's APR will be until you're approved; however, a higher credit score can help you qualify for an APR at the lower end of the range.
  • Fees: Credit card fees may include annual fees, fees for certain types of transactions (such as balance transfers or purchases outside the U.S.), or penalty fees for late payments or returned checks. Review the credit card's terms and conditions to see what fees are involved and when they apply.

The Bottom Line

Business credit cards can be useful tools for just about any business owner who has ongoing business expenses. Your personal credit score affects your ability to qualify for business credit cards with the most favorable interest rates and rewards. Before applying for a business credit card, check your personal credit report and credit score. If your score needs improvement, bringing late accounts current and making payments on time can help give it a boost.