Do you need a business credit card? If you're a small business owner, having a credit card that's separate from your personal credit card can pay off in many ways.
For example, a business credit card allows your business to establish creditworthiness, which can help secure financing, the Small Business Administration explains. It's also a way to prevent your personal and business debts from commingling.
However, there are still a few potential drawbacks. Here are some general considerations to keep in mind when deciding if you need a business credit card or not:
- Personal credit still affected. While your business credit card would mostly be separate from your personal credit card, your personal credit score may still take a hit when you apply for a business credit card. This is because banks will need your personal credit score to assess your credit when you apply for your business' card.
- Higher credit limits. Business credit cards often come with higher credit lines, allowing other employees to spend when needed. Also, business owners can set individual credit limits for each employee, which could help make tracking and managing their expenses run much more efficiently.
- Exempted from the CARD Act. In 2009, Congress passed the Credit Card Accountability Responsibility and Disclosure Act (the "CARD Act"), which protects consumers from two-cycle billing, unilateral APR increases, and certain fees. However, the act doesn't apply to business credit cards, which could possibly be at risk of all of these.
- Personal responsibility. What happens if you rack up debt on a business credit card? Usually, the business owner is still personally responsible for the debt incurred, if the business can't pay it off.
Bottom line: While there are many advantages to having a business credit card, you'll still want to consider your business' particular needs.
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