Business credit cards are for business purchases, and personal cards are for personal use. Right?
Well, yes, but many small businesses use standard personal credit cards for business purchases.
So, do you really need a business credit card? And how different are these cards from the consumer credit card everyone else has?
In this article, we’ll answer those questions and more.
We’ll outline the key differences between business and personal credit cards, from eligibility criteria, interest rates, credit limits, and rewards systems. We’ll also provide a quick guide on how to decide whether your business should use one or the other.
Business vs. personal credit cards: What’s the difference?
The short and sweet answer is that personal credit cards are designed for individuals, families, and houses, and business credit cards are designed specifically for business purchases.
While you can use either for the same purposes—retailers won’t make a distinction between cards at the point of purchase—and aspects like credit limits and interest rates can differ significantly.
Credit card limits
The credit limit your bank gives you always depends on a number of factors, such as your credit rating, financial history, and other debt.
Generally speaking, however, business credit cards offer higher credit limits than their consumer counterparts.
That’s purely because businesses have large expenses. They have to buy things like inventory, advertising, and corporate travel.
A mid-sized business could easily spend more in a month than a household spends in a year, so it's only natural that they’d require a larger credit card limit.
Rewards systems
The majority of credit cards — with the exception of some low-rate cards — offer some kind of reward system.
Those rewards tend to differ between business and consumer cards, however.
While a personal credit card might provide additional rewards for dining and gas purchases, business credit is more likely to offer programs that benefit business-specific spending, such as additional cash back on office supplies purchases or corporate travel rewards.
Additionally, many personal cards come with consumer protections like extended warranties and purchase protection, which you’re unlikely to find with a business card.
Eligibility criteria
Any credit card, be it a personal card or a business one, will require you to meet some form of eligibility criteria.
For consumer cards, this is usually a personal credit and income check.
Businesses applying for a company credit card will typically be subject to more stringent eligibility criteria, and banks will require more documentation.
The person applying for the card will need to be an owner of the business or an authorized representative. The company will likely need to provide financial statements to verify revenue, expenses, and financial health.
In the case of small businesses and startups, a personal credit check is often conducted as well, and a personal guarantee may also be required for SMBs with little or no financial history.
Interest rates
While headline interest rates tend to be in a similar range, there are some key differences in the details.
Business credit cards are more likely to offer variable interest rates, which change based on economic indexes or operational performance.
While some banks do have introductory or balance transfer offers on business cards, these tend to be more favorable (lower rates or longer interest-free periods) for personal cards.
Another key difference here is negotiating power.
Individuals don’t typically have a lot of negotiating power when it comes to their credit card interest rates. In the majority of cases, the rate is the rate — take it or leave it.
But with business lending, there is often more flexibility.
Business owners and finance professionals can use a strong history of on-time payments, low credit utilization, and proof of significant funding to negotiate more favorable interest rates. This becomes even more true over time as you establish a working relationship and financial history with that specific bank.
Liability
With personal credit cards, the cardholder is always personally liable for all charges made on the card.
With business cards, it depends.
In most cases, the business itself — rather than any individual within it — is responsible for any spending on the card.
However, some banks may require the business owner to personally guarantee the debt. If the business is unable to repay the credit card balance, the responsibility falls onto the owner to do so.
This is more often enforced when small businesses and startups apply for business credit cards and is much rarer as companies grow in size.
Impact on credit reporting
Applying for, having, and using a credit card all have impacts on your individual and/or business credit rating.
Having and using a personal credit card for business purchases does not impact your business credit rating.
Business credit cards, on the other hand, can impact both.
This depends on the card you choose and the specific terms and requirements your bank enforces.
Be sure to double-check here before signing. If your business fails to meet its repayment requirements, it could also have a negative impact on your personal finances, which can hurt your ability to access credit outside of the business.
Spending controls and expense reporting
When it comes to reporting and spending controls, business cards almost always have the upper hand.
Personal cards typically provide monthly statements and basic spending controls, such as the ability to shut down or freeze a card if it is lost, stolen, or misplaced.
Business cards offer much more advanced features.
Many business spending cards come with a built-in software platform, allowing finance teams to set spending limits for specific employees, track and report on expenses by category, access detailed statements, and integrate with other software tools like accounts payable automation platforms.
It’s worth noting here that some modern, forward-thinking personal financial institutions are beginning to provide individuals with greater access to similar spending controls and reporting functionality.
This is still the exception rather than the rule, however, and is rare within large, established financial institutions and big-name banks.
Business credit cards vs. personal credit cards: Which should you choose?
Okay, so there are obviously some big differences between personal and business cards. But which should you choose?
That’s going to depend a little bit on your specific needs, such as:
- Your business spending habits, patterns, and categories
- The size, age, and stage of your business
- Your company’s credit profile
- Available interest rates and offers
- Your need to manage spending and reporting
- How comfortable you are with personal liability for credit card debt
- The kinds of perks and rewards you’re looking for
Let’s explore some important scenarios where one type of card is more advantageous than the other.
Business spend management
Business credit cards clearly have the upper hand here.
They’re more likely to offer advanced spend controls like employee credit cards with personal limits, robust reporting and forecasting features, and integrations with accounting software.
Business cards also provide more detailed monthly statements that make preparing financial reports and handling tax obligations easier.
Employee spending
Business credit cards typically allow the company to issue additional cards to employees and then control spending limits.
This kind of functionality will be unavailable when using a personal card.
If you want your employees to be able to make purchases with their own cards and track how and where they’re spending, you’ll need a business credit card.
Building credit
Personal credit cards only impact your personal credit score.
Business crest cards, on the other hand, build the business’s credit profile and, in some cases, can contribute to your personal credit score.
In most cases, a business credit card is the better option from the perspective of credit scores. However, if, for instance, your business has a poor track record, but your own personal credit history is healthy, you might be able to access a higher limit or more favorable rates with a personal card.
Rewards and benefits
This is perhaps the only scenario in which it really makes sense to opt for a personal credit card over one designed specifically for business.
If you want to take advantage of consumer-focused rewards — things like additional rewards on spending categories like grocery and dining or consumer protections like extended warranties — a personal credit card might be a better choice.
In most cases, though, companies will want to take advantage of business-centric rewards systems, like additional rewards on categories like advertising or business travel.
Business credit cards for modern companies
99 times out of 100, companies should opt for a business credit card over a personal one.
But it’s not just about the card itself.
Today’s organizations need forward-thinking cards that offer powerful spend management features, deep reporting capabilities, business-centric rewards, and native integrations with other popular financial management software.
BILL Spend & Expense is the all-in-one expense management solution that offers all of the above and more and can even help you access business finance up to $5M.
Signup today or request for a demo today to discover more about BILL's automated expense management software.
