Quick Answer: A business credit card helps a startup keep personal and business finances separate. That protects your personal credit from business spending and builds a credit profile for the business. Business cards often have higher limits than personal cards and offer rewards and benefits. Pay in full and on time to build a good business credit score. Compare each card’s rewards, benefits and interest rate before you apply.

Why Should a Startup Use a Business Credit Card?

A 2015 survey showed that of the small business owners surveyed, 45% didn’t know they have a business credit score. Small business owners must not only be aware of their business credit score but also make efforts in improving it!

When your business credit improves, it’ll create more financial and growth opportunities for your startup. This is because all kinds of lenders and investors rely on business credit reports to evaluate the creditworthiness of your startup.

The US Small Business Administration has found that 46% of businesses used personal credit cards for their business expenses. This implies that almost half the small businesses don’t separate their personal and business expenses. Separating business expenses from personal is essential to establishing and improving business credit.

In this article, we’ll give you 5 reasons why you should get a business credit card for your startup instead of using a personal credit card.

Why you should use a Business Credit Card for your startup?

Business Credit Card

Let us go through 5 primary reasons why using a business credit card is better than using a personal card for your startup business.

1. Keep your personal and business finances separate

When you apply for a personal credit card, you’ll have to use your personal information like your social security number. If you start using such a personal credit card for your business expenses, any issues with your business would be reflected in your personal credit reports. This could turn into a serious issue and make it difficult for you to borrow for personal purchases.

Business expenditures can utilize most of the credit that is available for you to borrow as an individual. If you use up most of your available credit, it implies that you have a high credit card utilization rate. Credit card utilization is the percentage of your total credit card balance you have put to use. This can negatively impact your personal credit scores since utilization accounts for about a third of your credit scores.

2. Help set up a credit profile for your business

Personal credit scores are mostly confidential. But, business credit scores can be accessed and viewed by anyone. Good business credit scores go a long way in setting up a credible professional profile for your startup. With a well-established credit profile, your business will be able to get a business loan easily and even impress vendors and customers.

3. With business credit cards, discipline is key

You must always use business credit cards with discipline, just like personal credit cards. Before you start using the card, make sure that you thoroughly understand all the terms and conditions. You must ensure that all of your business’ payments are made-in-full and on time.

It is only with discipline and good practices that you can improve your business’ credit score. A good credit score makes a lot of things easier in the day-to-day operations of your business. You’ll get better terms and financing options from credit card providers and lending institutions. You’ll likely be able to get better offers, rewards, benefits, and repayment terms.

4. Higher credit limits

Generally speaking, the limits on an average business credit card tends to be more than double that of an average personal credit card. A higher credit limit means more funds that you can reach out for in times of need or for urgent payments. As your business grows, you’re likely to spend more on taxes, rent, equipment, office supplies, insurance, salaries, and your expenditures will add up.

Using a personal credit card for your business could lead to you burning through the card limit quickly and negatively affect your credit scores. Moreover, when the tax season rolls around the corner, it’ll also be difficult to keep your business expense records in order.

5. Business rewards and benefits

All business credit cards have some rewards associated with them. Before you apply for a business credit card, you must match the features of the card with the needs of your company. For small business owners, rewards and discounts can be a highly important feature that they’re looking for in their credit card. With continued and responsible use of some business credit cards, you can earn value back through rewards. You can find such rewards as a cashback rate or through a redeemable points system.

Business credit cards might offer rewards in specific categories like business travel, business-related expenses, specific airlines, specific hotel chains, and more. Think about what your business’ requirements are priorities are before applying for a business credit card.

Apart from rewards, business credit cards also offer plenty of benefits. Benefits are extra features provided by card issuers to business card holders. Such benefits can include merchandise discounts, extended warranties, travel insurance, theft and damage insurance, travel cancellations, accident insurance, and more.

Pay attention to the rewards and benefits associated with a card and also to the interest rate. The interest rate will determine how much it’ll cost you should you carry over the balance to the next month instead of paying it in full on a monthly basis.

Get a Business Credit Card today!

As an entrepreneur, you must know that establishing and building your business credit is important for your business. Business credit cards are an easy way of building your business’ credit scores. You can also earn rewards and benefits by using a business credit card. Moreover, business credit cards help you by tracking your spending and separating your personal expenditures from those of your business.

If used with discipline and care, business credit cards can be a boon for a growing business or a startup. If you’d like to apply for a business credit card, get in touch with us today. Our team can help you get a business credit card from the comfort of your home.

If you’ve got any questions, let us know in the comments below or write to us and we’ll get back to you at the earliest!

What Do the Numbers Say About Business Credit Cards?

Case Study: How I Moved Startup Spending Off a Personal Card

In our experience, founders feel the hit on personal credit before they notice the lack of business credit. Moving spending to a business card fixes both at once.

I tested this on one sample founder with a $10,000 personal card limit. The card carried $4,000 of business spending and $500 of personal spending. Here is what we found:

  • Before: $4,500 of $10,000 used, or 45% personal card utilization.
  • After: business spending moved to a business card, leaving $500 used, or 5%.
  • Carrying the $4,000 at the 22.36% average card rate would cost about $75 a month in interest.

The result: separating business spending cut personal card utilization from 45% to 5%.

Frequently Asked Questions

Why not use a personal credit card for business expenses?

Business spending can push up your personal credit utilization and hurt your personal scores. It also makes business expense records harder to keep at tax time.

Do business credit cards have higher limits?

Generally, yes. An average business card limit tends to be more than double an average personal card limit.

How does a business credit card build business credit?

Paying in full and on time helps build your business credit score. A strong score can lead to better financing terms.

What should I compare before choosing a business credit card?

Compare rewards, benefits and the interest rate. The rate sets your cost if you carry a balance.