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Do I Need a Business Credit Card?

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Quint Roper-Sirvent



For any business, big or small, financial management is crucial. One of the key decisions you'll face is whether or not to get a business credit card. Let's break down why you might need one, along with the advantages and drawbacks, to help you make an informed decision.

 

Why You Might Need a Business Credit Card

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1. Separation of Personal and Business Expenses

This is perhaps the most significant reason to get a business credit card. It helps keep your personal and business finances distinct, which is essential for tax purposes and financial clarity. Separation of spending will assist with obtaining financing later in your business journey. The ability to show good accounting to bankers and other potential lenders is imperative to accessing additional lending for your business.  

Easier Accounting: Tracking business expenses becomes more straightforward, simplifying accounting and tax preparation. 

Need more help tracking? We suggest Quickbooks.

 

2. Building Business Credit

A business credit card can help you build a credit profile for your business, which can be beneficial for future financing needs, like business loans or lines of credit. The catch is getting your first card may mean you have to secure the card personally. This means your personal credit must be good enough to support the business credit until the business has enough credit history to stand on it’s on. This means personal credit is still important during the early stages of business ownership. 

Already have a credit card and ready to open a line of credit? Try our preferred lender here

 

3. Access to Credit and Cash Flow Management

It can ease cash flow by allowing you to make purchases and pay for them later, especially important during slower business periods. Credit cards also help in managing operational expenses without immediately impacting your bank balance. In any case to control credit card debt we suggest only spending what your business can pay off monthly. 

Start building business credit with a Duns and Bradstreet account.

 

4. Rewards and Perks

Many business credit cards offer rewards such as cash back, travel points, and other perks that can benefit your business. These rewards can offset some business expenses when used wisely. For example, if your business requires travel by plane or car, the collection of points can assist with covering travel expenses or upgrading travel amenities over time at no additional cost. 

 

Pros of Having a Business Credit Card

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1. Convenience

It is easy to make purchases, primarily online or when traveling. Facilitates smooth transactions with suppliers and vendors.

 

2. Access to Emergency Funds

It can be a lifesaver in urgent situations or unexpected expenses.

 

3. Expense Tracking and Reporting Tools

Many issuers provide tools to track spending, which can help in budgeting and financial planning. This simplifies expense reporting, which is especially useful if you have employees using the card.

Need a bookkeeper for your business? Try Xero

 

4. Increased Purchasing Power

Typically, business credit cards have higher credit limits than personal cards, giving you more purchasing power.

 

Cons of Having a Business Credit Card

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1. Potential for Misuse

If not managed carefully, overspending or using the card for non-business expenses is risky. This can lead to high-interest debt if balances are not paid in full.

 

2. Credit Risk

Missed payments or high balances can negatively affect your business credit score. There is also still personal liability; in some cases, business credit may be tied to your personal credit card debt, as stated above.

 

3. Fees and Interest

Some business credit cards have higher annual fees or interest rates than personal cards. Late payment fees and other penalties can add up if not managed properly.

 

Conclusion

Deciding whether or not to get a business credit card depends largely on your business needs, financial practices, and discipline in managing credit. If you decide it's the right move, carefully choose a card that aligns with your business spending patterns and financial goals. Always read the fine print, understand the terms and fees, and use the card responsibly to ensure it becomes a tool for growth rather than a financial burden.

 

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