Why do I need a business credit card?
November 3, 2022 6 min read
Are you considering applying for a business credit card, but aren’t sure if you need one? If you want a credit card you can use to cover business expenses, then you absolutely do.
Most personal credit cards have cardholder user agreements and terms that prohibit cardholders from using personal credit cards for business expenses, including Capital One. Breaking these terms often has ramifications that could impact your credit card account, your credit standing, your financial stability or even your business. The bottom line: You should never use a personal credit card to cover business expenses. You should also never use a business card to cover personal expenses.
If you want the expanded buying power and flexibility for your business that credit cards tend to offer, then you should learn about the perks and functions of a business credit card. At Capital One, we know your time is valuable, so we’ve compiled key information to help you better understand business credit card benefits, considerations and uses.
What are the benefits of having a business credit card?
There are numerous potential benefits to having a business credit card. Whether your operation is still in the startup phase or has been established for a few years, a business credit card may expand your financial resources, offer enhanced control over your expenses and even simplify tax reporting. This is because these credit cards offer business-tailored features, such as:
- Business credit reporting: Business credit is slightly different from personal credit, and different bureaus monitor and assign credit ratings. Some business credit cards, including Capital One’s Spark cards, report accounts to these bureaus, potentially helping you establish or build your business credit.
- Generous spending limits: Business cards often have generous spending limits. This is because issuers consider your personal income, business revenue and personal credit standing when determining eligibility. Those high spending limits may also come with additional perks. For example, the Spark 1.5% Cash Select card offers cardholders the opportunity to get a spend bonus within the first three months.
- Specialized rewards programs: Business credit card rewards and perks are designed to match typical business needs and spending habits. For instance, Capital One’s Spark 1.5X Miles Select business card offers unlimited 1.5X miles on every purchase, a $100 credit toward Global Entry or TSA PreCheck® and unlimited 5X miles on hotels and rental cars booked through Capital One Travel.
- Free employee cards: Some business credit cards, such as Capital One Spark cards, allow you to give employees their own cards to access the business line of credit. You can often set spending limits or restrict transaction types for each employee card, which will help keep your business finances on track.
- Detailed expense reports: At the end of the year, Capital One Spark cardholders receive a detailed expense report that helps them categorize and track their spending. This is a common feature of business credit cards, designed to help businesses with accounting and tax efforts.
Business credit cards should also help keep your personal and business expenses separate, which makes itemizing those expenses and identifying potential tax deductions simpler at tax time. To make that process easier, Capital One Spark business cards also allow you to integrate your account with ERP platforms such as Quickbooks®.
Learn more about Capital One Spark Card benefits.
What are the considerations of having a business credit card?
Although business credit cards have significant perks, they do have some considerations, including:
- Impact to personal credit: When applying for a business credit card, it’s common for the issuer to make a hard inquiry on your personal credit report when determining eligibility. You may also be asked to provide a personal guarantee, where you’re personally liable for any outstanding debts. Actions like late payments could appear on your personal credit report. Alternatively, other actions, like paying on time, could positively impact your personal credit score.
- Limited consumer protections: Consumer protection laws may not apply to business credit cards. While some issuers may still abide by consumer protection regulations, it’s possible you may encounter higher fees or penalties for late payments than with a consumer card.
- Brief introductory periods: Business credit cards may offer valuable introductory or promotional periods but only for a short time, usually no longer than a year from the date the account was opened.
- Annual fees and interest rates: Business credit cards may have high annual fees. However, there are options that do not come with any annual fees, including several Capital One Spark cards. Business credit cards may also have high interest rates.
- Risk of overspending or card loss: Having a credit card to keep track of—or several, if you opt into employee cards—often means there’s a risk of the card being misplaced or stolen. Capital One offers security features that allow you to lock missing cards, receive fraud alerts and more. Distributing employee cards may also increase the risk of overspending on the account, but setting limits on the cards can help mitigate that risk.
How do business credit cards work?
A business credit card offers enhanced flexibility, control and management of your business expenses. Because it’s tailored for business needs, a business credit card often provides valuable benefits and features, such as high spending limits, detailed reporting, easy-to-earn rewards and the option to issue employee cards. A business credit card may also help you build your business credit, impacting and improving your future financial opportunities. However, it may impact your personal credit through a hard inquiry or personal guarantee.
What can I use my business credit card for?
Traditionally, your business credit card should only be used for business expenses, and your credit card issuer will likely have a clause in your contract stating that it cannot be used for personal expenses. Using your business card for personal purchases can possibly:
- Lead to your account being closed for violating terms and conditions.
- Make itemizing or deducting items for accounting or tax purposes more difficult.
You may use your business card to purchase items that can be considered a legitimate business expense, including:
- A monthly software subscription.
- Restocking office supplies.
- Booking travel for business trips.
To avoid paying heavy interest charges, try to only use the card for items you’ll be able to pay off within three months.
When should I get a business credit card with Capital One?
Not only are business credit cards necessary if you want to put any business expenses on a credit card, they are often beneficial for businesses of any size and any age. With features like employee cards, detailed expense reports, robust rewards and high credit limits, they may help you better manage your business finances and simplify accounting and tax procedures.
If you’re ready to capitalize on the benefits a business credit card may offer, check out Capital One Spark cards. If you’re curious about other financing options or want to learn more about topics like business credit, explore our small-business loans and lines of credit or visit Business Resources.