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Do’s and don’ts of using a business credit card

Using a business credit card

If you’ve abandoned the nine to five to become self-employed or start a small business, dealing with the financial ups and downs can be challenging. A common solution for smoothing out cash flow is to use a business credit card.

These types of cards can help you manage expenses and invest in resources to grow and build business credit — no matter if you’re doing business as a corporation or a sole proprietor.

According to the SBA website, “…business credit cards are the best unsecured business lines of credit a company can get. It provides the fast access to cash and payment flexibility associated with a traditional credit line but without all the drawbacks.”

Follow these tips to find a business credit card that meets your business needs and offers the best benefits:

1. Do shop for high rewards.

Many business credit cards offer rewards or cash back for purchases for common business expenses, such as travel, gas, phone and internet services, shipping and office supplies.

Shop for a card that gives you the most rewards for the types of purchases you make the most. In some cases, the perks you receive may outweigh any fees charged for using the card.

2. Do watch out for rate hikes.

Credit card regulations limiting when and how much card issuers can hike interest rates and fees don’t apply to business cards. While some issuers may choose to extend the same protections to your company, watch out for unexpected fees and interest rate increases.

3. Do request cards for employees.

If you have employees who make purchases for your company, most business credit cards offer additional cards for free. Just remember that even if a worker makes charges you don’t authorize, you’re still on the hook for them.

Always set appropriate credit limits per card and create alerts to spot unusual transactions.

4. Don’t charge personal expenses.

One of the most important reasons to get a business credit card is to keep your business and personal expenses separate. This makes recordkeeping, reporting and preparing for taxes much easier.

Gerri Detweiler, education director for Nav, says, “Costs such as an annual fee or interest may be tax deductible if the card is used strictly for business purchases. That may not be the case if you are using a personal card and mixing business and personal purchases.”

5. Don’t miss payment due dates.

If you get a business credit card that reports transactions to a business credit bureau — such as Dun & Bradstreet, Equifax, and Experian — you can build business credit by making payments on time. But, just like with consumer credit, late payments on a business card can hurt your business credit scores.

Detweiler says, “Small business credit cards virtually always require the owner to personally guarantee the debt. If you can’t pay it back, the issuer will almost always report the defaulted account on your personal credit reports, and may try to collect from you personally. So, make sure you don’t borrow more than you can afford.” 

6. Don’t accumulate excessive amounts of debt.

Flexibility, convenience and easy recordkeeping are a few of the benefits you get from using a business credit card. But the major drawback is the ability to rack up a lot of debt.

Many entrepreneurs may be tempted to finance company growth on a card while only making minimum monthly payments. Detweiler cautions, “Easy access to credit can be both a blessing and a curse for an entrepreneur. No one is looking over your shoulder scrutinizing your purchases, so you need to make sure you’re making smart spending decisions.”

Laura Adams on Twitter
Laura Adams
Laura Adams is a personal finance expert, spokesperson, and national media source who helps consumers improve their finances by making money easy to understand.

She’s the host of the top-rated MoneyGirl Podcast and award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Connect with Laura at LauraDAdams.com and on Twitter @LauraAdams.