How Do Business Credit Cards Work?

Intended for use by a business rather than an individual person’s use, a business credit card is essential for any entrepreneur. It allows you to keep business expenses separate from personal expenses and establish credit for your business (which can help you get better rates and terms for business loans).

The basics of business credit cards

Business credit cards are a form of revolving credit, meaning you can borrow up to a certain credit limit and pay it down – and repeat the cycle again and again, as long as you meet the terms of the agreement.
 
Just like individuals, businesses have credit reports and a credit history. Business credit cards usually come with higher interest rates than traditional loans because credit card debt is unsecured, and therefore a higher risk for lenders.
 
Many people wonder if you can use a business credit card to cover personal expenses. While it’s technically not illegal, it does violate the terms and conditions of most (if not all) cardholder agreements and the issuer could close your account. It also makes it more difficult if you ever need to reconcile business expenses in the future.
 
If you’re tempted to use your business credit card to cover a personal expense, try to remember that those purchases are affecting the spending power of the business you’re trying to grow. Your credit card company may also flag or even close your account if it detects expenditures that seem atypical for businesses.

How to apply for a business credit card

Many types of lenders offer business credit cards. The application process is similar to that of a standard credit card, and because an Employer Identification Number (EIN) isn’t required, small business owners can apply using another Tax ID Number (TIN), such as a Social Security Number. The approval process is typically automated, so applicants will know right away whether an application was approved.

Business credit cards and cash flow

Budgets can be tight for new business owners, and a business credit card can really help cover the cost of essential purchases when your cash flow is subject to short-term ups and downs.

The benefits of business credit cards

Budgets can be tight for new business owners, and a business credit card can really help cover the cost of essential purchases when your cash flow is subject to short-term ups and downs. Business credit cards help entrepreneurs manage expenses by keeping work-related spending separate from personal, which is important for accounting and tax purposes. And if your business has more than one employee, a business credit card also makes it easier for employees to make purchases
 
Business credit cards usually feature benefits designed to appeal to business customers, ranging from travel perks to cash back on purchases, sign-up bonuses, or an introductory rate of 0%. For instance, with the Patelco Mastercard® Business Rewards Credit Card, you earn 1.5 points for every dollar you spend on business purchases. Those points can be redeemed for cash back, gift cards, travel, and more. For a full list of benefits offered by Patelco please see the Guide to Benefits.

Do business credit cards affect your personal credit?

When you apply for a business credit card, the issuer usually runs a hard check against your personal credit. You’ll see a small, temporary impact on your credit score. Patelco Business credit cards will report activity to both your personal and business credit. (The top three for business credit are Experian Business, Equifax Small Business, and Dun & Bradstreet.)
 
Delinquent payments and other negative information related to your business card may be reflected on both your personal and business credit report, and your credit score will go down as a result.

Choosing the right business credit card

When you’re ready to select a business credit card, it’s important to look beyond the perks and rewards. In the end, you should choose a card that offers the best interest rate, lowest fees, and terms and conditions that suit your needs.
 
Use your business credit card responsibly and your business will reap the benefits. A stronger business credit score can open up bigger lines of credit and other business loans to grow your business – even if your personal credit score is low.
 
Patelco is committed to supporting small businesses. Meet with our Virtual Branch™ to learn more about opening a small business account or applying for a Business Rewards credit card.