Small business credit cards provide business owners with easy access to a revolving line of credit with a set
credit limit in order to make purchases and withdraw cash. Like a consumer credit card, a small business
credit card carries an interest charge if the balance is not repaid in full each billing cycle. You may be able
to get a credit card through your bank or you can compare cards terms and features – and apply online –
through our credit card tool. Lastly, unlike most loans or fixed lines of credit, small business credit cards do
not require that the card holder put up collateral to qualify for the line of credit.
Credit cards represent an unsecured form of borrowing, meaning that the loan sums are not guaranteed
by an asset of the borrower’s. Instead, the card includes a requirement for the card holder to sign a personal
guaranty, meaning that she or he is personally and legally liable for repaying the money borrowed on the card.
A business credit card can be a convenient way to quickly access financing for short-term needs and can increase
your company’s purchasing power. In fact, 37% of small business owners reported using credit cards just that
purpose, second only to a traditional line of credit, according to a National Small Business Association study.
However, like any source of financing, a business credit card comes at a cost and must be carefully managed.
Business Credit Card Pros – Along with providing necessary cash flow to help maintain and build your
business, credit cards can offer these advantages:
Convenience: Credit cards are the ultimate in financing convenience. Business owners can quickly access
funds for purchases or cash withdrawal, much more easily than having to find cash and/or use a checkbook.
Online Ease: Increasingly, business owners make purchases and do business online with vendors,
contractors and suppliers. Using a credit card makes online transactions easier.
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 card holders a percentage of their purchases.
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, rather than a traditional line of credit or bank loan.
Business Credit Card Cons – Before rushing to apply for a business credit card, it’s important
to consider these potential downsides:
Personal Legal Liability: Most small business credit cards require a personal-liability agreement
(your personal security) to repay debt. This means that any late or nonpayment 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.
Less Protection: Often, small business credit cards 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 what level of protection and
services a card offers before applying.
More Expensive: The convenience and ease of small business credit cards come at a price: They
typically charge a much higher interest rate (1-3% over prime) 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 your firm’s credit
limit or incurring late fees or penalties.
Using a Business Credit Card Effectively – Without a good system in place, it can be difficult to keep
track of – and keep a handle on – credit card spending, which ultimately affects your bottom line.
Here are some strategies to responsible ownership.