Should I Consider Getting A Credit Card For My Business?

By Deborah Ziff

When Clara D'Onofrio began teaching music classes to children in 2011, she opened a business credit card. Although she didn't have a lot of upfront expenses for Ms. Clara's Mini Musicians in Brookfield, Illinois — around $2,000 in instruments and marketing materials — she wanted a way to differentiate her business expenses from her personal expenses.

Over the years, she's added two more business credit cards as she's expanded, and she started a tradition of using the cash back rewards she earns to help fund an end-of-year celebration for her music teachers. It takes a little bit of the financial burden off for that kind of event, she says.

Business credit cards can be helpful for small business owners who are looking for ways to organize business records, front large capital expenses, or benefit from perks offered by credit card issuers, such as airline miles or redeemable points for cash.

Opening a small business credit card

Opening a small business credit card is much like opening a personal credit card. Initially, you will likely have to supply a social security number and will get approval based on your creditworthiness, says Jill Gonzalez, analyst at WalletHub, a personal finance website.

Even a startup business owner with very little or no revenue could get approved for a business credit card, if he or she has a decent credit score and a history of being responsible with credit. Depending on the card issuer, your business card spending may or may not show up on your personal credit report, says Daraius Dubash, founder and general manager for Million Mile Secrets, a travel website with money-saving tips.

It may be worth checking to see if your issuer reports small business activity to consumer credit bureaus, Dubash says. If you have high business expenses, using a business card that doesn't report to a personal credit bureau can help keep down what's known as your credit utilization ratio — the ratio of your credit balances to your credit limits — which is an important factor in determining your personal credit score.

As you use the card, your card issuer will likely begin reporting your activity to a credit bureau, and you'll begin establishing a business credit report.

Related: All About Consumer Credit Reports [INFOGRAPHIC]

Perks of applying for a business credit card

One major reason to consider a business credit card is to take advantage of rewards, often in the form of travel rewards or cash back, based on the amount you spend. In choosing a business credit card, consider how you might best be able to use business credit card benefits.

Some business owners love the idea of using credit cards to get perks and travel for less, Dubash says. Others just want the simplicity of cash back. There's no right or wrong. Either way, I'd say use a business credit card instead of paying cash because you're likely leaving some of those perks on the table if you pay cash.

Some cards also offer an introductory period of zero percent interest, which can be helpful for business owners who have large capital costs or are trying to consolidate and pay down debt.

Dubash uses several business credit cards to take advantage of travel rewards. In order to earn rewards, he says he tries to use his business cards for recurring expenses, such as email subscription services, web hosting, advertising, travel, dining, printing, conference fees, and transportation. He recently charged a large payment to an agency for a website redesign.

Due to his shrewd use of his cards, he's redeemed airline miles for first class seats to Mumbai and Hong Kong, among other trips, hotel stays, and access to airport lounges.

Related: 5 Ways to Maximize Credit Card Travel Rewards

Other benefits to getting a business credit card

Business credit cards have a few other advantages. If you have an unusually large expense, such as a pricey piece of equipment, some business credit card issuers may temporarily increase your credit limit if you have a history of paying your card back on time, Dubash says.

D'Onofrio recently used a business credit card program to help finance a project to record her original children's songs and make them available on CD. The program allowed her to charge $8,000 to help fund the project and gave her the equivalent of a 12-month interest-free loan, as long as she pays her minimum payments. That gives her some time to start making a profit on her initial expense.

It was just way more convenient, rather than trying to take out a line of credit or a small business loan, she says. Even though you have to be extremely careful, because I know of course if I missed a payment, or if I didn't pay it off [by the deadline], all that back interest will be charged to me. I use it very, very cautiously.

Related: Lines of Credit, Personal Loans, and Credit Cards — Which Loan or Credit Option is Right for You?

Deborah Ziff is a freelance journalist based in the Chicago area who writes about a range of topics, including higher education, personal finance, and business.

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