As your business grows and becomes more profitable, you will probably ask yourself whether you should get a business credit card. Having a business credit card has several advantages. A business credit card lets you separate business and personal finances, gives employees an easy way to make business purchases, and bolsters your business credit score.
Although more and more businesses are starting to discover these benefits, there are still several myths that plague business credit cards. Below, we raise and put to rest 5 of these myths.
1. Personal Credit Cards Have Better Rewards Programs and Perks
The reverse of the above is actually true. Business credit cards often have better rewards programs and perks than consumer cards.
You can earn more points year after year on a business card. Take Chase as an example. Chase Freedom is a mid-range consumer card, and Chase Ink Cash is a mid-range business card. Chase Freedom offers 5x points in certain categories up to $6000 in annual spending. Chase Ink Cash also offers 5x points in certain categories, but up to $25,000 in annual spending. You can earn 4 times as many points each year on the business card!
Banks tailor rewards specifically for business needs. For example, Amex offers 3x points on shipping, advertising, or computer software purchases, all areas where businesses spend a lot of money. Chase offers 5x points on purchases at office supply stores, another source of high business spending. As with consumer cards, points can be redeemed for travel, gift cards, statement credit, and more.
Beyond rewards, business cards often carry higher credit limits because banks recognize that businesses have more expenses than the average consumer.
2. Business Credit Cards Are Only For Big Corporations
Not true! 64% of small businesses with fewer than 50 employees reported using a business credit card in 2009. You don’t need to own a Corporation or LLC. You can get a business credit card as a sole proprietor. There’s no need to provide an EIN when you apply. You can qualify with your SSN and then use the card for business purposes. A word of caution here. If your name and SSN are on the application, you are personally liable for the debt, and (depending on the credit card company’s reporting practices) your personal credit score may be impacted.
Having a business credit card can simplify accounting for even the smallest businesses by separating personal and business costs. If you plan to hire employees, they will appreciate having a card on which to charge business expenses. Finally, having a business credit card builds your business credit, which can help tremendously when applying for business financing.
3. All Business Cards Have Annual Fees
While top-tier business cards have annual fees, there are several options for those who prefer a no-fee card. Leading credit card companies like Chase, Amex, and Capital One all offer business credit cards with no annual fees.
Remember, even if a card does have an annual fee, don’t automatically reject it from consideration. The top-tier cards usually make up for fees by giving you lots of opportunities to earn cash back and rewards.
If you would like to see a comparison of fees among different business credit cards, check out the Fit Small Business comparison of the best small business credit cards.
4. Employee Cards Will Cost Me Too Much.
A few business cards charge for employee cards, but most do not. With most cards, you can add an unlimited number of employee cards to your account for free. Examples include Chase Ink Plus, Chase Ink Cash, Amex SimplyCash, and all the cards in the Capital One Spark business family. Only higher end cards, such as the Amex Business Platinum and Gold cards, charge a fee for employee cards.
The nice advantage of issuing employee cards is that employee purchases earn rewards points for your company account. If your employee charges a bunch of business travel costs to her company card, your business account will reap the cash back/rewards points.
5. You Need a Stellar Credit Score or Established Credit to Qualify
This myth is half true. You need excellent personal credit (around 730) to qualify for most business credit cards. However, there are cards for people with lower credit scores or limited credit history. For instance, people with credit scores in the low 550s can qualify for the Capital One Spark Classic.
Have an even lower credit score? Secured credit cards, like Wells Fargo’s Business Secured Credit Card, extend you credit based on a deposit of cash collateral. For example, if you deposit $1000 in a collateral account, you can charge up to $1000 on the card. These cards are available to business owners with limited or poor credit history.