3 Benefits of a Business Credit Card

A business credit card presents distinct advantages that may help businesses navigate periods of economic stagnancy.

As the consequences of the global pandemic persist, the US economy continues its downward slide. It’s expected that gross domestic product will decline by 53% in the second quarter of 2020.

A majority (58%) of economists expect the economy to experience a slow recovery. During the slow economic rebound, many businesses may need supplemental resources to survive.

Prior to the economic downturn, a personal credit card may have been sufficient to cover expenses. However, this method may present limitations in this new economic climate. A business credit card presents distinct advantages that may help businesses navigate periods of economic stagnancy.


1. Separate personal and business expenses

A business credit card enables you to easily separate your personal and business expenses. Initially, it may be convenient to expand your use of a personal credit card to cover business expenses. However, your expenses grow with your business, which makes tracking and recording them more difficult.

Detailed expense reports may lead to a more seamless tax filing process. If you hire an accountant, these records reduce the amount of time they spend searching for information to decrease costs. During tax season, detailed financial records help you to maximize deductions. Without them, you may leave yourself at greatest risk for penalties. This includes potential challenges posed by the IRS. If ever faced with an audit, the separation may help to make the process smoother and quicker.

The separation between personal and business expenses offers additional benefits. For example, you cannot deduct acquired interest on personal expenses from your taxes. However, interest accrued on your business credit card is tax-deductible.

A separation between personal and business finances may also be required. For example, an LLC or a corporation requires a corporate veil to protect you against potential liabilities such as debt or lawsuits. A business credit card helps you to maintain thorough financial records to support more seamless processes including tax filing.


2. Expand your buying power

A business credit card provides you with greater spending power to support the cost of operations.

A credit limit for a business credit card considers an applicant’s personal income, business revenue and creditworthiness. These criteria, in part, contribute to their higher lines of credit.

If your business’s revenue is greater than your personal income, you may be qualified for a higher limit than that of your personal card. For a personal credit card, you report only personal income to which you have access. For example, an applicant for a Chase Ink Business Preferred card may qualify for a limit of up to $25,000. Whereas, Americans have an average total credit limit of nearly $23,000 across all of their credit cards.

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Access to greater amounts of capital may be particularly helpful to new businesses. Startups incur significant costs upfront, which aren’t eased by profit until anywhere between six months to several years. A business with significant operation costs may also benefit from a higher credit limit. For example, if you spend a significant amount on monthly inventory, a greater credit limit provides greater flexibility.


3. Build a credit history

A business credit card enables you to establish a credit history separate from your personal credit history.

When you apply for your first business credit card, the bank will determine your qualification based on your personal credit history. Once you open a business credit card, you start to build a credit history.

A business credit card enables you to build a FICO score that’s entirely separate from your personal credit history. This may help you to achieve your long-term goals.

If you’re in need of business financing, your business’s credit history is a critical determinant of your application’s approval or denial. A strong credit score is likely to instill confidence in lenders.

For example, you may want to take out a loan for a real estate purchase in the event that you want to expand your business to an additional location. Your eligibility for this loan and interest rate will be partially determined by your business’s credit history.

If you built a notable credit, lenders will be more confident in your ability to repay the sum borrowed on time. As a result, you may be better able to access a loan at a lower interest rate.


Consider a credit card for your business

Businesses should consider the benefits of a business credit card in determining their path forward during a period of economic decline.

A business credit card enables you to separate your personal and business finances. This not only helps you to build solid records in case of IRS involvement but also supports more efficient and advantageous tax filings.

As your business grows, you may reach a point when a personal credit card is no longer sufficient. You gain greater spending power with a business credit card to cover growing expenses. You build a separate credit history for your business with a dedicated credit card. If you face a significant expense, this history may help you to access favorable loans.


Kate Russell is an Editorial Associate for Clutch — an Inc. 1000 private company that helps decision-makers determine the best B2B service providers to solve business challenges. She leads accounting research and content initiatives.


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