Small business credit cards provide business owners with slowly access to a orb telephone line of credit with a set credit limit in holy order to make purchases and retire cash. Like a consumer credit wag, a small business credit card carries an interest charge if the balance is not repaid in full each bill cycle .
Reading: Using a Business Credit Card
You may be able to get a credit card through your deposit or apply on-line. You can compare wag terms and features through Investopedia ’ sulfur best clientele citation cards roundup review or by consulting our reviews of individual credit cards, which always include a section comparing the tease being reviewed to respective early cards .
A business credit card can be a commodious way to promptly access financing for short-run needs and increase your party ’ second purchasing office. It is much marketed as an attractive alternative to a traditional argumentation of credit. Like any generator of financing, a business credit card comes at a monetary value and must be carefully managed .
- A business credit card gives small business owners easy access to a revolving line of credit with a set limit.
- It has an interest charge if the balance is not repaid in full each business cycle.
- Said interest rate is usually much higher than the rate on a small business loan.
- A small business owner decides which employees may have a business credit card.
How a Business Credit Card Works
Without a thoroughly system in place, it can be unmanageable to keep lead of—and keep a cover on—credit card spend, which ultimately affects your bottom trace. Certain strategies can be utilized to ensure thoroughly credit batting order practices .
“ The most authoritative step a small occupation can take to make sure credit cards are used effectively is to set up a bomb-proof accountability system, ” says John Burton, founding collaborator of Moonshadow Leadership Solutions in Bryson City, N.C .
” This could mean everything from preapproval of all credit rating card spend to rigorous ask of receipts to pulling credit cards from those who do not report wholly and on time with receipts, ” says Burton. Have a system in place before the first credit tease arrives and, Burton says, be consistent, rigorous, and fair while tolerating no exceptions .
Deciding Who Receives a card
Burton acknowledges the challenges employers may face in deciding who gets a recognition batting order. “ I ‘ve seen businesses that lost control of credit wag spend by issuing besides many cards to besides many people and thinking that all-important officers and travelers needed the appliance of a company credit rating calling card, ” says Burton .
While giving everyone a recognition card might seem like the right or comfortable thing to do, it can lead to a “ dysfunctional, expensive system and a serious lack of control and accountability, ” he explains .
Use alternatives and establish rules. “ many companies, specially with salesperson, recoup for party spending on personal accredit cards with excellent accountability—i.e., no acknowledge, no reimbursement, ” says Burton .
It is helpful, however, to have clear rules regarding who gets a card, whether it ’ s based on seniority, stead, or other factors. This can help avoid confusion and mitigate bad feelings from employees who would like a card but are not eligible .
Setting Credit Card Limits
Every commercial enterprise should have clear policies about spend, including which expenses can be put on cards, how much employees can spend, and how much they can use their cards. It ’ randomness authoritative to put the policy in write and have every employee who is issued a circuit board read and sign it. After they do, give each cardholder a replicate to use for mention .
Depending on the clientele circuit board, you may be able to set up restrictions that limit transactions to a certain dollar sum, spending class, and even certain days and times. With some cards, you can set up individual restrictions for each employee .
For exemplar, you may limit one employee to $ 50 a day any day of the workweek for gas purchases, while limiting another to $ 100 for boast and $ 50 for meals each sidereal day, but alone on business days .
Being Watchful of Card Activity
many clientele citation cards allow you to set up natural process alerts that arrive as textbook or e-mail messages. The alerts can be set up to notify you each time a transaction takes place or alone if an employee uses ( or tries to use ) a card in an unapproved manner .
Using a business recognition calling card for big purchases that can ’ thyroxine be in full paid for before the interest charges kick in can prove a very expensive proposition. You can besides take advantage of on-line and mobile banking to view up-to-the-minute report activity. Your account department should review each affirmation to make certain each note detail is a charge you authorized .
Using the Card Wisely
It ’ randomness crucial to know when a business should use credit. It ’ s not always the best choice, particularly for large expenditures that can ’ thyroxine be paid in full before sake kicks in. even though it takes extra effort to secure a lend from a bank or other lending initiation, it frequently makes fiscal sense to do so, as the pastime rate on accredit cards is typically a lot higher than for such guarantee debt instruments .
It ‘s besides possible that a bombastic purchase—or a couple of bombastic expenditures—can soap out your credit calling card and leave you without a source of funds at all .
- Easier to qualify for a batting order than for a loan
- public toilet
- Provides a fiscal cushion
- utilitarian on-line
- Helps with bookkeeping
- Rewards and incentives
- tool to build credit
- More expensive than a lend or credit line
- personal legal liability
- security issues
- Less security than consumer credit cards offer
- Fluctuating concern rates
Advantages and Disadvantages of a Business Credit Card
Along with providing the necessary cash flow to help maintain and build your business, credit cards can offer these advantages :
- Easier Qualification—It can be easier for business owners who do not have a well-established credit history to qualify for a revolving line of credit with a credit card, especially if it’s secured, rather than a traditional line of credit or bank loan.
- Convenience—Credit cards are the ultimate financing convenience. Business owners can access funds for purchases or cash withdrawal much more quickly and easily than having to find cash and/or use a checkbook.
- Financial Cushion—A credit card can provide business owners with a much-needed financial cushion when accounts receivable are behind or sales are slow and the business is short on cash.
- Online Ease—Increasingly, business owners make purchases and do business online with vendors, contractors, and suppliers. Using a credit card makes online transactions easier.
- Bookkeeping Assistance—In addition to receiving a monthly statement, most cards provide small business cardholders with online record-keeping tools to manage their accounts, including a year-end account summary, which can help a bookkeeper track, categorize, and manage expenses. It can simplify bookkeeping, help when using outside professionals to navigate an audit and pay taxes, and provide an easy way to monitor employee spending.
- Rewards and Incentives—Many cards offer business owners rewards programs—including airline miles and shopping discounts—for using the card. Some also provide cash-back incentives, repaying cardholders a percentage of their purchases. In short, it can pay to choose carefully, so that you receive the best rewards card possible for your needs.
- A Tool to Build Credit—Responsibly using a small business credit card—which means paying the bill on time, paying more than the minimum due, and not going over the credit limit (which can trigger an over-limit fee)—can be an easy way to build up a positive credit report for your business. That, in turn, can help you be more likely to qualify for a loan or line of credit, and at a potentially lower interest rate, in the future. Keep in mind that irresponsible use of a business credit card can damage your credit, however.
Before rushing to apply for a business credit poster, it ’ sulfur important to consider these likely downsides :
- More Expensive—The convenience and ease of small business credit cards come at a price, as they typically charge a much higher interest rate than a small business loan or fixed line of credit offered by a bank. That interest can add up quickly if card activity is not repaid on time and in full each month. In addition—without a system to regularly and carefully monitor card usage—it can be easy to accidentally overextend your firm financially by going over its credit limit or incurring late fees and penalties.
- Personal Legal Liability—Many small business credit cards require a personal-liability agreement (your personal security) to repay debt. This means that any late or missed payment could result in a negative personal credit report and the inability to personally borrow money. You also may have to pay more with a higher interest rate.
- Security Issues—Security measures should be created to ensure that cards or card information are not stolen by employees, vendors, contractors, and others who come through the office space. It’s also important to make sure that employees who are authorized to use the card do not use them for personal spending, and that they take precautions when making online transactions to avoid being hacked.
- Less Protection—Small business credit cards often do not carry the same protection as consumer credit cards. For example, many cards will not provide the same level of assured services when disputing billing errors or needing to make merchandise returns. Be sure to review the level of protection and services a card offers before applying.
- Fluctuating Interest Rates—Unlike with a loan or fixed line of credit, the company that issues your credit card can reset its interest rate depending on how you use and manage your account. As such, it can pay to be aware of how rates work and can change.
Can I Use an EIN to Obtain a Credit Card?
An employee identification number ( EIN ) is a tax number that the IRS assigns to your commercial enterprise. You can use it to apply for a small business credit card ; however, you will most probable besides have to provide your Social Security Number to obtain the card .
Can You Get a Credit Card With an LLC?
To get a credit rating card with an LLC you must be the owner of the LLC in orderliness to apply for and receive the accredit card. not every employee is able to open a accredit poster. Non-owners may use the credit circuit board, but they must be authorized by the LLC to be able to sign for purchases .
What Is a Corporate Credit Card?
A corporate accredit card is a credit tease that a clientele issues to employees. It works in the like manner as a personal credit card but is only intend to be used for business-related expenses, such as clientele travel, business dinners, and early client-associated expenses. The corporate credit card allows for these expenses to be made so that the employee does not have to pay out-of-pocket and delay to be reimbursed.
Read more: When Can You File Taxes? | H&R Block
The Bottom Line
A business credit card comes with many benefits, such as ease of use, easier to obtain than a lend, a fiscal cushion, and a way to separate commercial enterprise expenses from personal credit poster expenses. Though there are benefits, a business credit card should be used with caution, as interest rates on cards are high, more thus than a loan, and business credit cards have less security than personal credit cards .