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What is a business credit card?
A business credit card follows the same concept as a personal credit card, except that it is used for business expenses. Companies issue business credit cards strictly for business purposes, and the card is attached to your business information, such as your EIN. Business credit cards allow you to make purchases without paying them off in full at the time payment is due, giving your business some wiggle room to work with in terms of expenses. Though you are allowed to carry a balance, you will usually get hit with late fees in the even of a missed or late payment (as well as a bad mark on your payment history). Make sure you pay off at least the minimum.
In other words, a business credit card can be seen as a debt product. What this means is that whatever amount you put on your credit card each month is a debt that you need to repay with interest (unless you pay in full at the time of payment). That doesn’t necessarily mean that the debt is bad — it just means that you owe the credit provider the money back, as you are spending on their dime.
There are different types of cards available depending on what type of spending you do. Some cards are better for consolidating business credit card debt, for carrying large costs, or for reaping points and cash back rewards for categories that you spend a lot of money in. Almost all business credit cards help build your business credit, as they report on your credit usage and creditworthiness to the major bureaus.
Benefits of a Business Credit Card
The main benefits of business credit cards are that they help build business credit and that they often come with cardholder perks such as cashback, purchase protection, and rewards. If you plan on paying your credit card in full every month, then having benefits such as cash back and rewards basically means that the credit card company is rewarding you to make purchases that you would have made anyway. Purchase protection is also an excellent benefit to have, as it usually means your purchases are covered in the case of lost or stolen packages, and that you’re usually able to get refunds even if a supplier doesn’t honor a refund request. This varies by the credit card issuer, however, so be sure to check the terms and conditions of your credit card.
In addition, if you keep your credit utilization low, make at least your minimum payments by their due date, and keep other good habits when it comes to credit card usage, then a business credit card can be a great way to build up credit history, and therefore business credit, and your credit score. This means that once you need to take out more serious financing, such as a long-term loan, your business will be better positioned to get the amount of credit that you need at favorable terms.
How to Get a Business Credit Card
To get a business credit card, you will need to fill out a credit card application and provide some basic information. We've reviewed the best business credit cards and made it easy to apply for business credit cards online here. You will also be asked to provide your business’s information and likely your personal contact information like name, address, and phone number as well. Most, if not all business credit cards can be applied for online, and some approve in as little as a few minutes. You can also call the customer service number of your credit card company, or apply in person.
Need a better business credit card or need to build credit faster? The Tillful Card for Business has opened up for early access! Tillful Card is purpose-built for small business owners with the benefits and features you care about most. Get on the waitlist here.
What is a Business Charge Card?
A business charge card is similar to a business credit card in that it allows you to make purchases without having to pay them off right away. In fact, many charge cards are marketed as “credit cards” or “corporate cards,” which can be a bit confusing for business owners. However, there are many key differences, which mainly come down to the payment terms and the ability to carry a balance. Unlike business credit cards, charge cards require payment in full at the end of each billing cycle (usually one month), and are often locked if a balance is left over, leaving you in “bad standing”.
A charge card works well for business owners who want the flexibility of a credit card, but know that they’ll be able to pay their card off in full at the end of each month. In addition, since you have to pay off the card each month, charge cards don't come with interest charges. Some charge cards even come with rewards programs, or can be hooked up with software to make tracking expenses easier, which is the case with the Ramp card.
This card type is usually issued to people who want a credit card, but who don't qualify for one due to poor business credit or a short time in business (or both). Because you pay off a charge card at the end of each payment cycle, it does not carry over debt month to month in the same way that a business credit card does. From a card issuer’s perspective, charge cards carry slightly less risk, as they can simply lock your card in the event of a missed payment.
Benefits of a Charge Card
A charge card is a good fit for people who want to have the benefits of a credit card, but who don't yet qualify for one. It's also perfect for people who simply want the accountability that comes with having to pay off a full balance every month. Finally, most charge cards don’t require a personal guarantee, whereas most business credit cards do. This can be a great perk for business owners who don’t want to put up their personal cash and assets as collateral.
You will need to pay your balance off at the end of every month for this card to work. Thus, it is not ideal for somebody who wants to carry a balance as part of an investment in their business. In addition, charge cards don’t always report to the major credit bureaus, and so they don’t always help you build your business credit. If you want to use a charge card to build business credit and boost your credit score, then look out for the ones who report, such as Brex and Divvy.
How to Get a Charge Card
You can apply for charge cards at credit unions and banks that offer this type of product. You will need some basic personal information like name, address, and social security number when applying for identification purposes, and will need to provide information about your business.
Charge cards are also popular emerging products in the fintech space, so there are many available to apply for online. We mention Brex, Ramp, and Divvy a lot — these cards all come with great perks for founders and small business owners, and designed with ease of use and an online experience in mind. Some credit unions and banks also offer charge cards that can be applied for on your computer.
Need a better business credit card or need to build credit faster? The Tillful Card for Business has opened up for early access! Tillful Card is purpose-built for small business owners with the benefits and features you care about most. Get on the waitlist here.
What Is The Difference Between Business Credit Cards And Charge Cards?
Business credit cards are revolving and allow you to carry over an unpaid balance month to month. A business charge card is non-revolving and requires payment in full each month. A business credit card almost always reports to the major credit bureaus, thus affecting your business credit score, whereas a charge card may not. Finally, business credit cards typically always require a personal guarantee, while charge cards exert the same kind of risk control by simply locking your card if it goes unpaid.
Last Word on Business Credit Cards vs. Charge Cards
Whether you end up choosing a business credit card or a charge card, it’s best practice to pay off your balance in full at the end of every payment cycle. That said, when it comes to business finance options, sometimes credit cards can be a solid financing solution, and business owners choose to view any carried costs as an investment. As always, do your research about any perks that come with each card to see which gives you the most bang for your buck. And if all you can qualify for right now is a charge card, then we recommend choosing one that reports to the credit bureaus, so that using it can boost your business credit score. That way, you can level up when you need to, and lay the foundation for future success.
