What is a business credit card and how does it work?

Business credit cards can be a powerful financial tool when you’re running a business. Not only do they help keep your business and personal expenses separate, they are designed specifically for business-related spending and often come with features that help track and manage your finances.

There are different types of business credit cards available, such as charge cards, cash back cards, no annual fee cards and more—the best option depends on your business’s unique needs. Keep reading to understand more about business credit cards and how they may be able to support your business.

What you’ll learn:

• Business credit cards work like personal credit cards but offer features and benefits to meet the unique needs of business owners.

• With most business credit cards, you can keep personal and business expenses separate. And they typically offer higher credit limits.

• Some business credit cards offer additional benefits, such as free employee cards, elevated travel rewards, welcome offers and business-grade security features.

• Whether you’re looking for travel rewards, need a flexible spending capacity or want to earn cash back, Capital One offers a range of business card options to help power your business.

A business credit card is a type of credit card designed for company spending rather than personal use. It’s a financial tool that you can use to separate business expenses from personal expenses. Business credit cards typically come with features like higher credit limits, business-grade rewards and account management tools to help run your day-to-day operations.

While many corporations and registered businesses use business credit cards, they can also be obtained by anyone who earns money independently—like freelancers or sole proprietors.

Business credit cards work like personal credit cards by giving you access to a revolving line of credit that you can use to make purchases and repay over time. At the end of the billing cycle, you’ll receive a statement itemizing everything you’ve purchased throughout that period. 

The statement shows your minimum payment due and the total balance on the card. If you pay the balance in full, you may avoid accruing interest on your purchases. Any remaining balance will accrue interest at the rate defined in your card’s terms. 

Depending on the card issuer, your payment activity may be reported to business credit bureaus. This means that making on-time payments and keeping balances low can help establish and strengthen your business credit profile over time.

Business credit cards are used by business owners and entrepreneurs to make purchases on behalf of their companies. To use a business credit card, you can charge eligible expenses, track spending and pay off your balance regularly. Typical company expenses may include:

• Travel costs

• Rent and utilities 

• Inventory 

• Equipment and supplies

• Marketing and advertising 

Along with keeping your business-related expenses separate from personal expenses, you can use a credit card for your business to help manage cash flow more effectively. They’re also often used to track employee spending while reducing the need to reimburse them for purchases. 

There are various types of business credit cards, and each has different features and benefits. Here are some of the most common categories of business credit cards:

• Cash back business cards: Cash back is a type of reward that’s earned—typically as a percentage—when you make purchases with your business card. Spark Cash and Spark Cash Select from Capital One are prime examples of cash back business cards.

• Travel rewards business cards: These cards offer rewards—usually miles or points—that can be redeemed for travel-related purchases. Some travel rewards business credit cards from Capital One include VentureOne Business and Venture Business.

• Business charge cards: With business charge cards, the balance generally must be paid in full each month. They typically have no preset spending limit, which can be beneficial if your business has higher spending needs. Venture X Business and Spark Cash Plus from Capital One are examples of business charge cards.

• No annual fee business credit cards: Certain business credit cards—like Spark Classic from Capital One—offer business-grade benefits without an annual fee.

Business credit cards offer a variety of advantages that can help you manage your business more effectively, like:

• Expense tracking: Having a credit card designated for business can help you manage and track business expenses more efficiently. This can be particularly helpful for tax and accounting purposes.

• Higher lines of credit: Compared to personal credit cards, business credit cards can have higher credit limits. Some business cards come without a preset spending limit, which means you can enjoy flexible purchasing power that adapts to your business.

• Elevated rewards: Business credit cards may offer a higher level of travel rewards or cash back than personal credit cards. These enhanced rewards programs can allow for an easy way to put money back into your business. 

• Employee cards: Some business credit cards allow you to add employees to your account and monitor their spending. You can also set individual card limits and earn rewards on purchases your employees make on behalf of your business.

• Business-related features: Certain business credit cards—like any business card from Capital One—come with additional benefits, such as no foreign transaction fees, and year-end summaries to help you get business done.

• Welcome offers: Many business credit cards come with welcome offers. These typically come in the form of additional miles, cash back or travel credits after meeting a spending requirement.

• Opportunity to build business credit: If you choose a credit card for your business that reports payment activity to the business credit bureaus, you can start to build a credit history for your company. A good business credit score can potentially help you secure financing with better terms in the future.

There are a few things to keep in mind before you secure a business credit card, such as:

• A personal guarantee may be required. If the issuer requires a personal guarantee, you’ll have to sign a contractual agreement stating that you would be personally responsible for any debts the business is unable to repay.

• Some business credit cards may have higher annual fees. Many business credit cards charge an annual fee to use the card. It can be helpful to research the card’s features and benefits to determine whether they outweigh the cost of the fee.

If you’ve decided a business credit card is right for your company, there are a few steps to take before you’re approved. Here’s how you may be able to apply for a business credit card and potentially be approved:

1. Review various business credit card offerings: Compare the different types of business credit cards available and consider your company’s spending needs to determine which card makes the most sense for your organization.

2. Prepare necessary documents: When you apply for a business credit card, the issuer will likely ask for things such as your personal information, business details and your Employer Identification Number (EIN) or Tax ID Number.

3. Get pre-approved: One step you might take to narrow down your options is getting pre-approved. It’s a good way to determine which business credit cards you’re eligible for. Capital One offers a pre-approval tool that’s quick and easy to use—and won’t harm your credit scores.

4. Wait for approval: Card issuers will review your application and determine your eligibility. Factors like your personal or business credit score and annual income are typically key considerations. Depending on the issuer and how you applied, approval might happen almost immediately or take up to a week or two. 

Business credit cards can help you take the next step on your business journey as you begin to separate your business and personal expenses. They can also serve as a tool to manage your business more effectively while potentially earning additional benefits and rewards.

There is a wide range of business credit card options available, and the right one for you depends on your business’s unique goals and needs. Compare business cards from Capital One today to see which card can best power your business. You can even see whether you’re pre-approved first, with no impact on your credit scores.