SIUE’s Alicia Plemmons, PhD, assistant professor in the School of Business’s Department of Economics and Finance, lent her business expertise to consumers worldwide in WalletHub’s breakdown of the best business credit cards.
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Read below Plemmons’ advice on the best ways to use business credit cards and their significance to small business owners.
How important are credit cards to small business owners?
Pretty important. Expenses for small businesses can often be unpredictable and that business may not be to size or age where they have established relationships with distributors or suppliers. Being able to make quick purchases for things like printing, signage, supplies, ingredients, etc. can be the difference between a business that can respond quickly to consumer changes and one that can't weather economic fluctuations.
What are the best ways to use a business credit card?
Small businesses should keep credit cards as a form of variable purchasing power. I would not recommend them for all purchases but used for immediate need purchases, for regularly invoiced accounts, or flex spending. Using business credit cards and regularly paying off the balances can establish a healthy relationship between the business and lending company, which is useful if there are ever large purchases or expansions that need to be made. A business with an established and healthy lending history will be able to access a wider variety of banking services in the future.
Why use a business credit card for business instead of a personal card?
Liability and accountability. Especially in cases where the small business is incorporated, being able to easily distinguish between business and personal expenses can save business owners from quite the headache come tax time. Also, it reduces much of the scrutiny on justifying what all credit card purchases were business-related versus for personal use.
Does a company need to be incorporated to get a business card?
Business credit cards are available for all types of businesses, from the small home business structured as a sole proprietor to large LLCs. Interest rates and requirements vary by the lending institution, but there is no law saying that a business must be incorporated to obtain a business card.
Why don't more banks and credit unions offer business credit cards?
Often, many do. But these credit lines are often extended because of a prior relationship with the banking institution. Working with small businesses can leave banks and credit unions open to adverse risk and they may prefer to work primarily with checking and savings accounts. There are many other choices though, as credit companies have grown, we have seen a wide variety of institutions that specialize in all types and structures of businesses.
All things considered, are business credit cards better than personal credit cards?
It depends on what you are using them for. If an expense can be identified as a business expense and the small business often has variable and unexpected expenses, then a business credit card would be the way to go. Having a separate credit interest for your business can reduce animosity at tax time, establish a relationship for future expenses, allow a business to participate in invoicing and setting up retail accounts with distributors and suppliers (which occasionally will also allow for a discount on goods and services).
