Small Business and Credit Cards

Dayton Uttinger  | 

Starting a small business is a daunting and life-altering task. While some entrepreneurs are lucky, most do not have the funds immediately available to them to establish a business. Not only are there the costs associated with securing a location, recruiting employees, and various other start-up expenses, but getting the entire enterprise on its feet takes time–time that you still need to eat, sleep, and pay for your electric bill.

What’s more, running a business is filled with unpredictability. Just when you think that you’re established, you find yourself looking into your retirement account to fill the gap in daily expenses. Or one of your employees runs up to you midday, screaming about how you’re out of thermal paper, and you end up handing over your personal credit card to cover it. Or you apply for a loan, only to find out that your business credit matters just as much as your personal credit.

The finances of small business are difficult and intricate, and adding the complexities of credit cards might sound like a nightmare, but 65 percent of small businesses report frequently relying on the business card. It can actually be your saving grace as an entrepreneur.

Credit At the Beginning

When you get the ball moving on your business, be conscious of how you use your business credit card. You’ll be personally responsible for any financial missteps here. With every purchase, you’ll have to weigh your options. Is it better to use your personal or your business card here?  Take a couple of these factors into consideration:

  • Are you going to be able to avoid interest on this payment?  The CARD Act does not apply to business cards, so companies are free to raise your interest rates with time on existing payments. If your revenues aren’t predictable enough for you to make payments on time, you could wind up creating extra debt for your company.
  • Be aware of how long your zero-rate introductory period lasts!  Many cards offer a period of zero or low interest after you first sign up, so plan accordingly. You’ll want to be careful about making major purchases if there’s a chance you won’t pay them off before your interest rate changes.
  • Know that your business credit can affect your personal credit. Many credit companies will report your habits to consumer credit bureaus as well.

Day-to-Day Spending

Handling your business expenses is complicated. If you grow enough, then expense-tracking will be enough to keep one person busy full-time–or even an entire department! Keeping that in mind, it’s crucial that you keep your business finances separate from your personal finances. This might sound simple at first, but it can get more complicated as time goes on. With every purchase that you put on your business card, ask yourself, “Is this purchase directly helping further my business goals?”  Dinner with colleagues to discuss strategy, perhaps, but the cocktails you had afterwards?  Generally, alcohol is not considered a qualified business expense, so you might need to pay for those separately on your own tab.

However, even the average entrepreneur should take advantage of their benefits! Business credit cards accumulate different rewards. You’re more likely to regularly spend money on office supplies, for example, than the average individual. Some business cards consequently offer rewards that focus on office supplies, travel miles, or other common business expenses. There are flat-rate rewards you can choose instead, where you are rewarded minimally for all expenses, but if you find yourself constantly buying printer ink or plane tickets, you might want to rethink your rewards program.

Many business cards also offer easy ways to complete expense reports or otherwise track your spending. This is extremely helpful come tax season, especially if you’ve kept your personal and business finances separate. Instead of sifting through individual receipts, you’ll have clearly organized expenses associated with two separate spending accounts. You can spend a few hours filing your taxes instead of several days.

Your business card will have a higher limit than most personal cards, but you still need to keep that in mind. Setting up different auto-payments on the card will save you peace of mind, not to mention build your business credit. However, it can also lead to you going over the limit after some unexpected fluctuations or emergency purchases. It’s especially important that you keep track of all financial activity on the card. Not only to mitigate fraud or identity theft, but because your employees’ livelihoods depend upon your business’s financial health.

When Should You Use it?

There are some purchases that you should definitely put on your business card. Not charging these items is a disservice to yourself and your business.

You ought to purchase appliances on the card, especially if your credit card offers an extended warranty program. Make sure to keep the statement showing your purchase, the original warranty, receipts, and any other relevant documentation! Doing so can save you a headache later on. Many manufacturers’ warranties only last a couple months, and having an extended warranty to fall back on can be a lifesaver.

Make sure you’re also covering employees’ business expenses. This might sound obvious at first, but you’d be surprised how many businesses expect their employees to shoulder the cost of daily items. Not only does covering their expenses help them out, but it also gives you a clearer idea of what your real operating costs are. Of course, giving an employee their own card is a sign of utmost trust, so exercise caution if you decide to go that route.

Additionally, whenever you travel for exclusively business, make sure you’re using the card. Booking your flight, the hotel, and any additional standard travel costs can be charged. This is a reliable way to build miles, as well as keep your business expenses and any personal expenses you may have on the trip separate.

When Should You Not Use it?

Well, besides irresponsibility, how should you not use your business card, specifically?  There are a few big mistakes that you should avoid.

If you’re uncertain about your business’s future, whether because of an unsteady start or a shaky expansion, try and hold off on using your credit card as much as possible. Desperation might be changing your perspective, but remember that every dollar you fail to pay back will just become more expensive later on. For example, if your business is struggling to pay your employees, you may be tempted to put payroll on your credit card. While you might think this is your only option, payroll tends to be one of small business’ greatest expenses. Charging such a large sum of money on a card is a surefire way to guarantee you don’t pay it back in time. This will only further your business’ problems in the future.

Don’t pay your taxes with a credit card! You might have to pay more than what you owe to the credit card company, thanks to interest, but you’ll also definitely have to pay more than what you owe to the IRS. Why? The IRS does not pay your credit card’s processing fee. That fee is usually absorbed by the business that you buy something from, but the IRS does not pick up that bill. So even if you do pay your balance back on time, you’ll definitely pay more than you owe.

Having a small business is one of the biggest risks that you can take. Entrepreneurs in particular risk everything to see their dream realized. You have to put your trust in yourself to the test, but that is not enough. The trust of friends, family, and, yes, multinational financial institutions is critical to moving your business in the right direction, no matter what stage you’re at. A business credit card is a tremendous tool that can be used to give you a head start when you were lagging behind, earn you the perks that you deserve, or expand into that second location. The only real limit is your own resourcefulness… and whatever number you and the credit card company agreed to.

For more business tips and guides, visit our small business resource center. Need more information on credit cards? Visit our credit card resource center.


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Dayton is a chronic Wikipedia addict, which is detrimental to her social life but stellar for her writing. She resides in Boise, ID, surrounded by her own frantic outlines, highlighted encyclopedias, and potatoes. The latter was not by choice.

This post was updated December 11, 2017. It was originally published April 12, 2017.