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Update: Some offers mentioned below are no longer available. View the current offers here – The Business Platinum® Card from American Express, Bank of America Business Advantage Cash Rewards Mastercard credit card
You’ve taken the entrepreneurial plunge and opened your own business. You’ve put the rent and utilities in your new company’s name and set up auto bill pay. You’ve purchased the phones, computers and office supplies your firm needs to do its work. You’ve done all this using your personal credit card.
This is fine, particularly in the early days of your startup.
There’s no one-size-fits-all moment when a small business owner should apply for a business credit card. Your company doesn’t have to be clearing millions in sales to become eligible for one of the best business credit cards. In fact, even if you’re just starting out, you may be able to qualify for a business credit card.
Still, there may come a time when getting a business card will help you better manage your company — and when continuing to use your personal card for business expenses may do more harm than good. Here are five signs you need to apply for a business credit card now.
1. You’re Confusing Your Business Expenses With Personal Expenses.
Business expenses are generally tax deductible. But the Internal Revenue Service won’t let you deduct personal, living or family expenses. If those two types of expenses are co-mingled and you can’t tell them apart, it’s time to separate them. This will make your or your tax preparer’s life considerably easier when filing time rolls around — not to mention that separating personal and business credit card records could also help you in the case of a government audit.
To qualify as a business expense, the IRS says the purchase must be both ordinary and necessary. If you own a marketing business, for example, computers, office supplies and furniture would qualify as both ordinary and necessary. So, too, would the cost of insurance premiums, phone bills and travel, all things business owners might ordinarily pay for with plastic.
You also can deduct interest expenses, a nice benefit if you tend to carry a card balance. Note that the tax reform measure signed into law by President Trump in late 2017 places some restrictions on interest deductions, although if your business has brought in average gross receipts of $25 million or less for the past three years, you’re exempt, according to MarketWatch.
Finally, some business credit cards offer handy expense management tools that allow you to better track and account for your spending. The Business Gold Rewards Card from American Express, for example, comes with a feature called Spend Manager, which allows you to add receipts and notes to your transactions using either your computer or smartphone. And if you use QuickBooks to manage your accounting, you can label and transfer your transaction data directly from your card’s online account statement.
2. Your Personal Credit Card Is Too Restrictive.
If your monthly business expenses are forcing you to bump along the top of your credit limit, it may be time to apply for a business credit card. Business cards can offer higher credit limits than personal cards. Some cards, especially charge cards, come with no preset spending limit.
That doesn’t mean the issuer will allow unlimited spending. Issuers that offer cards without a spending limit often tie the amount they’ll allow you to charge to your payment history, credit record and your known financial resources.
Along with a potentially higher credit limit, some business cards also may offer additional flexibility:
- Spend above your credit limit without penalty. In case your company needs to make a big purchase or your cash flow is uneven, the SimplyCash® Plus Business Credit Card from American Express allows you to spend above your monthly credit limit as long as you repay the account balance above the credit limit in full (plus your minimum monthly payment) by the bill’s due date. This perk can make managing your business easier, but, again, it’s not unlimited. The issuer dictates how much you can spend based on things like your payment history. So always pay on time.
- Carry a balance without paying interest. Most credit cards start charging interest if you haven’t paid off your balance by the monthly payment due date. The Plum Card® from American Express gives cardholders 60 days to pay off a balance before accruing interest. You’ll have to make your minimum payment — 10% of the balance from new charges plus any previously deferred balance in full — by the due date to avoid interest. In months where cash flow isn’t a problem, you can also enjoy a 1.5% discount on the portion of eligible charges you pay off within 10 days of your statement closing date.
- Pay no interest on purchases for a limited time. Although introductory 0% APR offers on personal cards tend to be more generous, finding a good intro offer on a business credit card isn’t impossible. The Ink Business Cash Credit Card comes with a 0% introductory APR on purchases for 12 months. (After that, it will be 15.49% – 21.49%.)
3. Your Company Charges Thousands of Dollars a Month in Expenses.
If you’re just starting out and your overhead is low, you may be able to get by putting occasional charges on your personal credit card. But if your monthly credit card spending begins to climb into the thousands of dollars, you’re missing out on free money by failing to apply for a business credit card.
For big spenders especially, issuers continue to offer some pretty spectacular welcome bonuses that could mean hundreds of dollars or more in cash back or free travel. You may even be able to take advantage of business card bonuses even if you already own the personal version of that credit card.
These big bonuses may only be worth it to companies that have big expenses because the minimum spending requirements are quite high. You can earn 50,000 points with The Business Platinum® Card from American Express. But you have to make $10,000 in qualifying purchases within the first three months of account opening. TPG values that bonus at $950. Spend an additional $15,000 in the first three months and you’ll earn an extra 50,000 points.
The most lucrative bonus available comes from the Ink Business Preferred Credit Card. Earn 80,000 points after you spend $5,000 on purchases in the first three months. That bonus is worth $1,680, TPG estimates.
If your monthly spending is too modest to justify cards that require high minimum spending, you can still find business cards that offer good bonuses with a small minimum spend — $1,000 or less.
4. You’re Not Earning Rewards On The Things Your Company Buys Most.
If you’re using a credit card that offers stellar rewards on groceries — and you’re running an IT firm — you might be using the wrong card for your business spending. Good news: Business credit cards offer some great diversity when it comes to the spending categories that offer the highest rewards.
Of course, there are numerous cards that offer great travel rewards and perks. But what if your major monthly purchases revolve around telecommunications services or office supplies? Personal cards aren’t going to help, but there are several business cards that have you covered.
The Bank of America Business Advantage Cash Rewards Mastercard credit card pays 3% cash back on purchases at gas stations and office supply stores (up to $250,000 each calendar year, 1% after that), 2% on purchases at restaurants and 1% on all other purchases.
The Ink Business Cash Credit Card pays 5% cash back on the first $25,000 spent in combined purchases at office supply stores and on cellular phone, landline, internet and cable TV services each account anniversary year.
The Costco Anywhere Visa Business Card by Citi pays 4% cash back on eligible gas for the first $7,000 per year (1% thereafter),
3% cash back on restaurants and eligible travel purchases and 2% cash back on purchases from Costco and Costco.com.
5. You Want To Establish Business Credit.
When you first apply for a business credit card, your personal credit may be impacted when the issuer pulls your credit report. But once that line of credit is open, it sits apart from your personal credit, meaning it won’t impact your own utilization score and, ultimately, your own credit score. (Yes, there is such a thing as a business credit score, but if you default, the issuer may still come after you personally.)
Going forward, if your business takes off and you apply for a business loan — think expansion, capital purchases or real estate — lenders will look at how well you’ve handled your business line of credit. Just like with your personal credit, the better you’ve handled paying off your business credit card in a timely manner, the better interest rates you’ll likely be offered for that business loan.
And if you ever need to cancel that business card, it won’t impact your personal credit score or the amount of credit you have available to you personally.
Feature photo by Hero Images / Getty Images
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The Points Guy Appraisal:
The Ink Business Preferred Credit Card launched in October 2016 and it quickly became one of the most popular business credit cards on the market. It has a strong sign up bonus, triple point categories and unique perks. This card earns a respectable 3 points per dollar on the first $150,000 in combined spending on travel; shipping purchases; internet, cable and phone services; and advertising purchases made with social media sites and search engines.
- Earn 80,000 bonus points after you spend $5,000 on purchases in the first 3 months from account opening. That's $1,000 toward travel when you redeem through Chase Ultimate Rewards®
- Earn 3 points per $1 on the first $150,000 spent on travel and select business categories each account anniversary year
- Earn 1 point per $1 on all other purchases–with no limit to the amount you can earn
- Points are worth 25% more when you redeem for travel through Chase Ultimate Rewards
- Redeem points for travel, cash back, gift cards and more – your points don't expire as long as your account is open
- No foreign transaction fees
- Employee cards at no additional cost
- $95 Annual Fee