Personal vs. Business Credit Cards

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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During the last several years, credit card companies such as American Express and banks such as Citibank have stepped up efforts to attract small business owners. Chances are, you have seen several attractive advertisements for small business credit cards and wondered how they compare to your personal credit cards or corporate business cards.

Personal Credit Cards

Personal credit cards offer low to moderate credit limits, minimum monthly payments, and lower interest rates compared to most corporate credit cards. Personal credit cards also come with a number of legal protections aimed at consumers. Few of these protections carry over to business credit cards.

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Small Business Credit Cards

The purpose of a small business credit card is to provide short-term financing for business purchases and flexibility in paying and tracking business expenses. In most cases, the credit obtained by the company is based on the credit rating of one or more owners of the company. The owners must agree to be personally liable for debts incurred on the company card.

There are several advantages to small business credit cards. First, business cards improve cash flow. Companies require cash to operate. During a recession and other tough financial times, customers might be slow with making payments or in some cases, they will not pay at all. This means, the company cannot always count on quickly converting its sales into cash. In order to fill this gap, the company may have no other choice but to use credit. The small business credit card gives them the credit they need to carry through.

Second, many small business credit cards offer rewards or bonuses for certain types of transactions. A common type of reward is frequent flyer miles. Some small business credit cards may offer cash back programs or discounts. Third, small business credit cards make tracking expenses easier. Business credit cards offer detailed reports in print and online. Businesses may track expenses by category, employee, or both. This saves precious company time by eliminating the task of reconciling expense reports and compiling costs for tax returns.

Fourth, because businesses may need substantial credit for operating expenses, small business credit cards typically have higher credit limits. While this is an advantage it comes with a drawback. Because the credit card is based on the owner’s credit rating, it might be difficult or impossible to get a small business credit card if the owner has poor credit.

Corporate Credit Cards

Corporate credit cards are quite different from small business cards. A corporate credit card is issued to the corporation—not to its owners. In some cases, the credit card may require the company principals to sign a personal guarantee, but the card is issued based on the corporation’s credit. Next, unlike small business and personal credit cards, corporate cards are not sold “off the shelf.” If a corporation is interested in obtaining a corporate card, the company must seek out the credit card provider. In most cases, corporate cards are the result of complex negotiations between the credit card company and the corporation.

A downside to both small business credit cards and corporate credit cards is, few of the consumer protections and disclosures that are legally required for personal credit cards do not apply to business credit. This means, it is even more important for the company, and anyone involved with signing an agreement on behalf of the company, to understand what their specific rights are under the agreement. In the end, it is important to confirm any and all conditions you are agreeing to, what you are personally liable for , and how finance charges will be calculated.

If you need help analyzing small business credit card offers or negotiating a corporate credit card agreement, you should consult an attorney specializing in business finance.

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