Should You Open a Business Credit Card?

What a business credit card does well

It separates business spending from personal spending, gives you a grace period before payment is due and can build business credit when reported.

The strongest case for a card is bookkeeping and float. Every purchase lands in one statement, which makes expense tracking and tax time easier. If you pay the full balance before the due date, you effectively borrow for a few weeks at no interest.

Cards can also offer employee cards with spending limits, purchase protections and rewards on categories like shipping, software or fuel. Not every card reports to business credit bureaus, so check if building business credit is a goal. See how to build business credit and the full guide to business credit cards.

The costs and risks to weigh

Carrying a balance can be expensive, many cards require a personal guarantee, and annual fees or penalty rates can erase rewards.

Be clear-eyed about these points:

• Interest. Card rates on a carried balance are typically high compared with a term loan or line of credit.
• Personal liability. Many small business cards require the owner to guarantee the debt personally.
• Fees. Annual fees, late fees and foreign transaction fees add up.
• Utilization. A high balance relative to the limit can affect personal credit if the issuer reports it.

Rewards are only valuable if you would have spent the money anyway. Never spend more to earn points.

Card versus line of credit

A card suits many small, everyday purchases that you repay quickly. A line of credit suits larger or less predictable needs and usually costs less if you carry a balance.

Here is an illustrative example. You need $15,000 for materials and expect to repay it over four months. On a card with a high rate, interest over that time could be several hundred dollars or more. A line of credit with a lower rate costs less, though it may include fees. For a closer comparison, read business line of credit vs. credit card.

Limits also differ. Many small business cards have limits that are too low for large purchases, and large vendors may not accept cards or may add a surcharge.

Who should wait

If you cannot pay the card in full most months, or your personal credit is rebuilding, wait or choose a different tool. A card will not fix a cash shortage.

New owners sometimes reach for cards because approval seems easy. But carrying balances for payroll or rent leads to rising interest and stress. If your cash is tight, review your numbers first. Our cash flow analysis guide helps you find the real gap.

If credit is the obstacle, see business credit cards with bad credit to understand what is possible and what the cost may be.

How to use a card wisely if you open one

Use it for planned expenses, pay in full, automate payments, keep utilization low and review the statement monthly.

Simple rules keep a card useful:

1. Set up autopay for at least the full statement balance.
2. Use the card for expenses you have already budgeted.
3. Give employee cards low limits and review activity.
4. Reconcile the statement against your books each month.
5. Keep balances well below the limit.

Applying for a card in the business name with an EIN is possible; see applying for a business credit card with an EIN.

When funding fits better than a card

For larger purchases, growth projects or seasonal gaps, working capital, equipment financing or a line of credit often fit better than carrying card debt.

ROI Funder does not place business credit cards. The closest fit is a business line of credit, which you draw, repay and redraw. It is a better match when you need a larger limit, but it is not a fit if all you want is a rewards card or an expense-tracking tool. For one-time projects, look at working capital or equipment financing.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue, with funds possible the same business day on approved, complete files. See our overview of business credit cards for an honest picture.