Why Do I Need a Business Credit Card?

Why Do I Need a Business Credit Card?

by Phelicia Boone

Are you a small business owner? Are you currently using your personal credit card to finance your business purchases? Stop now! You should consider the positive reasons for using a separate credit card...a business credit card!

Business credit cards offer special incentives:

Although business credit cards generally offer interest rates that are higher than personal credit cards, you can still find value incentives from select credit companies which are directly comparable to personal credit cards, if you qualify. Not necessarily mutually inclusive, these incentives include cash back or travel rewards; savings on travel such as car, hotel, flight and other products; credit limits up to $50,000; flexible payment options; introductory rates as low as 0% APR; limited-time balance transfer rates as low as 0% APR; and even low interest rates that are comparable to personal "prime +" rates.

Before choosing a business credit card, do your homework. Read the fine print about fees, late payments and circumstances that can cause the interest rate to increase. Compare features that will benefit your company and thus become an overarching savings vehicle.

Business credit cards can be used to keep your business and personal finances separated:

When collecting and retaining information for tax and bookkeeping purposes, a business credit account will provide you with a monthly itemized list of goods and services, specifically purchased for your business. This eliminates the possibility of commingling personal and business finances and makes your audit trail much clearer. At the end of the year, many business credit accounts also provide a yearly summary of purchases. This is yet another avenue to help reconcile your bookkeeping. But more importantly, companies that may loan you credit in the future base their decision to do business with you based on your business credit history. So, there lies an incentive to start building your business credit now.

Business credit - How do I quality? What's my liability?

Oddly enough, the criteria for being approved for a business credit card can be based on your personal credit history, your personal income and possibly your personal assets, especially if you are a sole proprietor. So why couldn't you just have the lower personal rate of interest to begin with? Business credit card spending limits are generally much higher which increases the creditor's risk. Therefore, the risk warrants the desire for a higher return by the creditor.

If your business can stand on its own merit, meaning your financials are in order and you have a profit generating business, you may be able to open credit in the company's name without attaching personal liability or pledging personal property. Specifically, if your business is formed as a Corporation or a Limited Liability Company (LLC), you essentially (within the law) protect your personal assets from business creditors and hence from seizure or liens. With other company formations such as sole proprietorships and partnerships you are personally responsible for business debt incurred.

Favorable Tip: Like any other credit, your business credit should be monitored. Be aware of fraudulent charges and damaged goods. Know your rights and make sure you are protected in the creditor's terms and conditions.