Most adult Americans are familiar with the concept of a credit card, but they might be tripped up by the difference between a personal credit card and a business credit card.
Most likely, you can apply for either–even if you don’t have an operational business at the moment. Both can appeal to small business owners, depending on how you use credit cards.
You are probably familiar with using a personal credit card–the United States Census Bureau says that over 70% of Americans have at least 1 credit card.
No laws say that you can’t use a personal credit card for business expenses. However, having 2 different cards for personal versus business expenses can make accounting much simpler.
Generally, there are more consumer protection laws in place for personal credit cards. Congress passed the Credit Card Accountability Responsibility and Disclosure Act (or the Credit CARD Act) in 2009. That law requires lenders to keep uniform payment due dates and to inform credit card holders of major changes, including interest rate hikes, with at least 45 days notice. These protections do not apply to business credit cards, so if you hold one, you should check the payment due dates and terms on a monthly basis.
Personal credit cards and business credit cards use separate lines of credit. Although lenders will do a hard check on your personal credit score when you apply for a business credit card, the actual business credit line will be separate from your personal credit line. If you default on your business card, though, the lender will be able to go after your personal assets.
Business credit cards come with fewer protections, higher interest rates, and increased fees, but they can offer many perks if used responsibly. Ideally, the best way to optimize the benefits of a business credit card is never to carry a balance.
Generally, business credit cards offer some of the best bonuses in terms of cash back, points, and miles. Some might require a high volume of charges because businesses have a much larger amount of monthly cash inflows and outflows compared to the average individual.
This volume could result in you getting much more in return for repeated use of a business card.
A business credit card can help your small business build credit on its own, too. Starting up and maintaining good credit can be key for future loans from a bank when you want to expand.
If you see the terms of a business credit card as too volatile, you may want to stick to a personal credit card for now.
However, many small business owners opt for a business card to make accounting easier, take advantage of better bonuses, and build business credit. If you can pay off your balances and continually pay attention to the terms, business credit cards can provide robust benefits for your fledgling business. Lendio has a detailed business credit card marketplace where you can compare features.