A business credit card can be an incredibly useful tool for companies, but there are also some potential pitfalls that owners need to be aware of before taking out a new line of credit. In this short guide, we explore some of the most important pros and cons of business credit cards to help you make a more informed decision on whether or not your company could benefit from one.
Pros
Keeping personal finances separate
Especially for start-ups or small businesses, it can be tempting to make business purchases on your personal card. While this might seem more convenient, it can make it harder to track and distinguish between company and personal spending. With a business credit card, you can more easily monitor what’s been spent on the company, which is especially important when it comes to taxes and accounting.
Credit cards also often automatically group expenses into different categories which further helps with streamlining financial tracking. In addition, loading business expenses onto your personal credit card could push your credit utilisation ratio up, which can have a subsequent impact on your credit score.
Benefit from rewards and perks
Whether it’s discounts on goods and services, cashback or travel-related benefits, using a business credit card can be an incredibly rewarding way to spend. Another common perk businesses could benefit from is free cards for employees, which again helps to streamline finances by eliminating the need for reimbursements on personal cards.
To ensure you’re getting the most from your credit card, it’s important to research and understand all the available options just as you would with a personal equivalent. However generous a rewards package might appear, you’ll only benefit from them if they align with your personal interests and spending habits.
Cons
Higher interest rates
One of the main drawbacks to taking out a business credit card is they often come with higher interest rates than personal cards. This is partly due to the fact that business cards are generally used to make more significant purchases, so issuers are keen to protect themselves against losses.
If you aren’t able to pay off your debt in full each month, this can put an additional strain on your finances, ultimately impacting your bottom line. However, you may be able to benefit from extended 0% interest periods with some providers, so again it’s always worth shopping around for the best deal.
They don’t always have cardholder protections
Unlike consumer equivalents, business credit cards don’t always offer cardholder protections from things like zero liability for fraud or notification of interest rate rises. This isn’t a blanket rule – some providers will still follow similar guidelines to consumer cards. Any safeguards will be clearly outlined in your terms and conditions; make sure you understand what you are and aren’t protected against before taking out a credit card for your company.
