Business Credit Card
What Is a Business Credit Card?
A business credit card is a credit card planned for use by a business as opposed to for an individual's personal use. Business credit cards are accessible to businesses of all sizes and can assist them with building a credit profile to further develop future borrowing terms.
How a Business Credit Card Works
Business credit cards are offered by an extensive variety of lending institutions. The cycle for applying is like a standard credit card application. Business borrowers can apply despite everything a employer identification number (EIN), which makes it more straightforward for small businesses to get a card.
Generally, business credit cards are more straightforward to apply for than non-rotating business loans since the interaction is typically automated, with an immediate credit decision.
Business credit cards ordinarily have somewhat higher interest rates than traditional loans. The explanation is that the credit card debt is typically unsecured, and that means higher risk for lenders. (A few lenders likewise offer secured credit cards that can be useful for businesses with practically zero credit history.)
Business owners can apply with an EIN assuming that they have one laid out, or they might utilize their personal Social Security number. Lenders will base their underwriting analysis on all of the data remembered for the credit application. Businesses have credit reports and lay out a credit history similarly that individuals do, so any activity utilizing an EIN will be reflected in the business' credit report.
Masters of Business Credit Cards
Business credit cards enjoy a few unique benefits compared with their consumer partners. For instance:
Overseeing Expenses
Business credit cards can be an effective method for overseeing and organizing business expenses. As well as offering the typical accommodations associated with credit cards, business credit cards help small business owners, specifically, keep their business related spending separate from personal spending. This separation can be valuable for accounting and tax purposes. The cards likewise give a simple way to employees to make purchases and for businesses to monitor their employees' business purchases.
Special Perks
Business credit cards for the most part have a few unique benefits intended to captivate business customers. These benefits might be unique in relation to the ones offered to individual customers. For instance, some business credit cards give cash back on purchases at stores that businesses are probably going to visit, for example, office supply stores. Business credit cards additionally will generally offer bigger sign-up bonuses than individual credit cards, in anticipation of high business spending. Many likewise will offer 0% interest as a starting rate for a short period of time.
Travel advantages are one more common benefit, since numerous businesses have huge travel expenses. A business credit card could qualifies the holder for utilize a carrier's VIP relax at air terminals or receive discounts on lodging stays during business trips.
Likewise, business credit cards some of the time offer more flexible repayment terms, intended to appeal explicitly to businesses whose cash flow might be unpredictable.
Cons of Business Credit Cards
In any case, business credit cards additionally have a few serious disadvantages that are worth thinking about:
Personal Guarantees
Frequently, businesses don't have the base requirements required for credit scoring or other analysis of their creditworthiness, so the lender might ask for a personal guarantee from a business owner or other individual. A personal guarantee is a contractual provision that expects the individual applying for the card to take responsibility for the ordinary payments and fees.
Numerous business credit card agreements incorporate a personal guarantee provision no matter what the business' creditworthiness, so borrowers should peruse and completely see every one of the terms framed in the agreement. In the event that the lender enacts the personal guarantee provisions for repayment, any delinquencies on the card could be reported on the individual's credit report and damage their credit score.
Less Consumer Protections
While Congress has expanded protections on consumer credit cards, most remarkably in the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 (CARD Act), it has generally made business cards exempt from the new rules. Accordingly, consumer protections that many individuals underestimate with their customary credit cards —, for example, disallowing interest rate increments on existing equilibriums — may not make a difference to their business cards.
Some card issuers have deliberately extended a portion of those protections to their business credit cards, yet candidates shouldn't expect that except if it's explained in the card agreement.
Highlights
- Business credit cards are intended for use by businesses, rather than personal credit cards, which are utilized by individuals.
- For small business owners specifically, having a business credit card can be an effective method for keeping their business and personal expenses separate for bookkeeping and tax purposes.
- Business credit cards frequently accompany special advantages, however they lack a portion of the consumer protections that are required on credit cards for individuals.
