Should you get a small business credit card?

If you're starting your own small business or already operate one and want to keep work purchases separate from your personal spending, you might want to consider applying for a business credit card.

Business credit cards often offer better perks versus personal cards like discounts, airline miles or bigger cash-back percentages, experts say. Some even offer business counseling for customers. 

You don't need to be a big company to apply. Many startups, sole proprietors and small LLCs use business credit cards. No matter what your small business structure, it's worth considering whether to get a separate business credit card. 

Here's some information on how to get started.

What is a business credit card?

A business credit card is much like your personal credit card, but comes with more options tailored to any size business, says Danielle Harrison, a certified financial planner and founder of Harrison Financial Planning in Columbia, Missouri. There are many reasons you may want one for your small business.

"You can have authorized users, and typically set different parameters for your employees," Harrison explained. "For example, you may say that in a month your employees can only spend up to $500. It allows you more control than what a personal credit card would."

Before proceeding with a business credit card, make sure your credit is in top shape. 

What is the purpose of a business credit card?

A business credit card can help you keep track of expenses, pay for everyday company needs and give you the chance to accumulate more perks than a personal card typically offers. It can also help keep your business operations separate from personal finances.

Here are some other reasons to apply for a small business credit card:

• You want to keep your business and personal finances separate
• You travel frequently for business
• You're interested in getting better perks 
• You want to issue cards to employees
• You want to keep track of most day-to-day business expenses

You can use a regular credit card for a small business in some cases. For example, if you're a sole proprietor or freelancer that doesn't intend to grow, a business card might not make sense. 

How to qualify for a small business credit card?

Most small businesses can qualify for a small business credit card. That includes sole proprietor, an LLC, partnership, and different corporation types.

Even if you have a side-hustle or passive income on top of your regular job, you may want to consider applying for a business credit card.

Business credit card issuers may examine your personal income and assets or that of a family or partner, especially if you're just starting out, Harrison noted. 

It's also important to make sure your credit score and history are in good shape before applying. Need help fixing your credit? Experts are ready to assist you today.

How does a business credit card work?

Business credit cards work much like personal credit cards. You can use the card for expenses, supplies, contractors and other needs. 

Experts recommend paying off the card monthly if possible. That's because interest rates are usually in the double-digits – much higher than small business loans.

"The first thing to think about is how much of a balance is really prudent to carry if you can't pay it off immediately," noted Blaine Thiederman, a certified financial planner and founder of Progress Wealth Management near Denver. "If you want to try to grow your business as fast as possible, you can't just throw debt at the wall and hope that you make good decisions."

If you need longer-term credit, consider a small business loan over several years that offers lower interest, Thiederman suggested.

Do you need an EIN for a business credit card? 

In most cases, you'll want to get an Employer Identification Number or EIN. That keeps your business operations separate from your social security number and personal finances for tax and other purposes.

Pros and cons

Here are some pros and cons to consider when thinking about business credit cards:

Pros

• Business and personal finances are separate with different IRS identifiers 
• You can issue cards to employees
• A business credit card gives you an easy way to track expenses
• Generally, perks like cash back and travel rewards are better than personal cards

Cons

• If you have financing needs, credit card interest rates are typically much higher than other kinds of debt financing
• If you're just starting a small business, you may have to co-sign for a business credit card, putting your personal savings and assets at risk
• It's easy to rack up debt quickly on a credit card

How many credit cards are too many credit cards?

It depends on the income your business is generating.

"It's about your income, it's about your sales as a business, It's about what you can afford. It's about what's prudent and responsible," Thiederman said.

"If you have three or four different credit cards as a business owner, and you're maxing them all out? Probably not a good decision. If you have three or four credit cards, and you pay them all off at the end of every month before interest accrues, it means you probably are doing just fine," Thiederman added.

Do business credit cards check personal credit?

Typically, yes, especially if your business isn't yet well-established.

"Business credit cards will often rely on the owner's credit history," Harrison said. "Individuals think, 'Oh, I can get a business credit card, and they're not looking at all my personal information,' but they are."

That's because business card issuers ultimately look to you, the owner, to guarantee or pay debts. Plus, owners are responsible for employees who are authorized users of the business credit card, Harrison notes.