The right credit card can be a powerful tool for supporting your small business or scaling up your side hustle.

You may be able to use a business credit card to start building a strong business credit profile.

When you need to purchase fuel, inventory, equipment, supplies, or other timely essentials, a dedicated business credit card can help you effectively manage these expenses while delivering a number of valuable benefits.

In this article, we’ll cover five key advantages of business credit cards, plus some action points for using them wisely.

1. Keeping Business and Personal Expenses Separate

This is the first rule of small business bookkeeping, and a dedicated business card can make it much easier. Rather than sorting through stacks of receipts, bank statements, and check registers, you’ll have all of your business expenditures recorded in one place. Plus, credit card issuers provide digital reporting tools that let you view, categorize, and connect your data with your accounting software. This can save you time and money each month, and it can really come in handy if the IRS ever audits you.

2. Tracking Employee Spending

If your team members regularly buy supplies or cover travel expenses with purchase orders, paper checks, or petty cash, implementing a credit card solution could deliver major operational efficiencies while also boosting safety and oversight. Business credit cards come with online card management tools that let you monitor transactions in near real-time and set custom limits to restrict usage to certain merchant categories, times, places, or dollar amounts.

3. Racking Up Rewards

Many business credit cards come with valuable rewards programs, signup bonuses, and other perks geared specifically for commercial use. Depending on your typical business practices and choice of card, you could earn extra cash back or rewards points for spending in certain categories like air travel, office supplies, or fuel and fleet. As for what to do with those rewards, the choice is yours – you can either put them toward future business expenses, distribute them as employee bonuses, or use them for personal spending.

4. Enhancing Cash Flow

Cash flow is the lifeblood of any small business. The beauty of credit cards is that you can delay payments until the end of your monthly billing cycle – without keeping your fellow small-business vendors waiting and guessing. And business credit cards typically give you a grace period of up to three weeks between your purchase date and payment date. Delaying a single payment by a single day could give metrics like days sales outstanding (DSO) and days cash on hand (DCoH) a boost. You can amplify this advantage by timing large or recurring charges towards the beginning of your billing cycle.

5. Building Credit

Depending on your business’s legal entity type (sole proprietorship, LLC, S corp, etc.) and the type of card you select, you may be able to use a business credit card to start building a strong business credit profile. This separates your personal credit rating from your business’s credit rating and establishes your enterprise as a responsible, independent entity. By following the same basic advice that applies to personal credit – pay your bills on time, avoid high balances, and limit credit utilization – you can earn high scores and qualify for bigger loans at better rates down the road.

Tips for Success

Business credit cards are relatively easy to get, and they can be packed with perks. But as with any financing tool, they require careful consideration and oversight. Here are some best practices to keep in mind:

• Use credit cards for short-term financing only. Accrued interest on unpaid balances can quickly get out of hand. To spread out payments on a bigger-ticket item, consider a loan or line of credit from your financial institution.
• Develop clear rules for card use. Issuing cards to multiple employees can streamline your operations, but it can introduce additional risks if you don’t have robust spending policies and controls in place.
• Scrutinize the terms and perks. Look for a business credit card with no or low annual fees, no-fee cash advances, a discounted introductory rate, and/or rewards that add value to your business.
• Monitor your credit regularly. Business credit cards can help you to build business credit, but they often require personal guarantees, which means that your personal credit could take a hit if there’s fraud or misuse.
• Understand the tax implications of rewards. Cash back and rewards points aren’t considered taxable income, but if you use them for business purposes, you can’t treat those items as (fully) deductible expenses.

Pick a Card

To explore your business credit card options and other smart financing solutions, consult your financial institution.