Is It Time For A Business Credit Card?
As your business grows and evolves, when is it time for a business credit card? Normally this will occur when your business growth and complexity requires that you separate the payment of business expenses from your personal credit card, for a host of reasons. A business credit card provides the separation of business versus personal expenses for accounting transparency, serves as a new source of credit capital and helps build your business credit profile to improve future financing.
Let’s review when it’s time for a business credit card and see if it is right for your business situation:
1 – Transparency Of Business Versus Personal Expenses
It is time for a business credit card when your business growth and complexity requires accounting transparency for tax reporting purposes. Since business expenses are generally tax deductions, you will want to separate business expenses from any personal expenses to take advantage of all tax benefits. This implies that the business credit card should be ONLY used for business expenses, no mixing with personal expenses allowed. At tax time filing your accountant will be appreciative of this business decision.
2 – Personal Credit Card Restricts Business Growth
Business credit cards normally offer higher credit limits than personal credit cards. As your business grows there is normally an increase in business expenses. When your personal credit card limit is holding back your business growth, it is time to fill out a business credit card application.
As you investigate different business credit cards, in addition to a higher credit limit, you will likely find some additional credit benefits:
- Exceeding Credit Limit Without Penalty – All business credit cards have a standard spending limit. Some cards offer you the flexibility to go over your standard limit, without penalty, subject to full repayment within the payment period. This benefit would help your business with a large purchase or uneven cash flow payments. Since the business credit card issuer will use your payment history to determine whether and how much additional credit your business qualifies, consistency of on-time payments is key.
- Interest Free Over Balance Payments – Most business credit cards will charge interest on any balance remaining after the payment due date. Some card issuers however will provide an additional period of time (e.g., 60 days) interest free if you make the minimum payments. Again this benefits your business if there is uneven cash flow payments.
- Interest Free Introductory Period – A variety of business credit card issuers offer an introductory period of time without charging interest on the outstanding balance. The introductory period will range from 6-12 months, after which time the interest rate goes from 0% to 14+%+. If your business is considering a major purchase or investment, you can use this benefit as an interest free, short-term business loan.
3 – Develop Business Credit History
It is time for a business credit card when the growth and maturity of your business requires its own separate credit history for future financing options. These financing options might include long-term business loans and lines-of-credit, with capital limits significantly higher than available with personal financing.
As the business owner, when you will apply for a business credit card, your personal credit score (history) will be evaluated by the issuer as part of the approval process. You will also be required to provide a personal financial guarantee of payment since your business financial history is not established. However, once the business credit card is approved by the issuer, the financial transactions are tracked separately by the credit bureaus, helping develop the business credit score (history), together with other factors.
4 – Reduce Business Expenses Via Rewards Programs
The issuers of business credit cards offer rewards programs as a means of differentiation to help reduce common business expenses. As expected, the reward benefits of a business credit card are directed toward common business expenses and are different from those available with personal credit cards. These business discount rewards include travel, office supplies, telephony, internet, travel and entertainment, among others. The key is to select a business credit card reward program that aligns with your business purchasing needs.
Is It Time For A Business Credit Card – Conclusion
A business will reach a moment when it is time for a business credit card as part of its financial options. The separation of personal versus business expense management allows for transparency in tax reporting. A business credit card allows for growth due to higher credit limits versus a personal credit card. The use of the business credit helps develop the business credit history profile for future financial options such as long-term loans and lines of credit. Depending upon your current business situation, this financial solution may fit your business needs, now or in the future.
Please call us at (888) 213-3383 to help review which financial product best serves your business needs or Contact Us via Email.