Your first business credit card, explained

A business credit card works much like a personal one. The issuer sets a credit limit, you make purchases, and each month you get a statement with a minimum payment. If you pay the full statement balance by the due date, many cards give a grace period with no interest on purchases. If you carry a balance, interest is charged at the card’s annual percentage rate (APR).

Not every business card is a credit card in that sense. A charge card has no preset revolving balance; the full statement balance is due each month. Corporate cards and spend-management cards are often designed for companies with more revenue or cash in the bank, and may base their decision on those business finances rather than the owner’s personal credit.

Business cards often add features built for teams, such as employee cards with their own spending limits, category controls and expense reports that export to accounting software.

• To keep business and personal spending apart. The SBA’s guide to managing your finances (opens in a new tab) stresses separating the two, and the separate finances guide explains why it matters for taxes and liability.
• To pay recurring costs, such as software subscriptions, supplies and travel, from one place.
• To get a short float between a purchase and the payment due date.
• To start building a business credit history, if the issuer reports to business credit bureaus.

A card is not a substitute for planned financing. For larger or longer needs, the business line of credit and working capital loans pages explain options that usually cost less to carry over time.

Forming an LLC or a corporation can separate business debts from the owner’s personal assets in many situations. A personal guaranty is a promise that overrides that separation for one account. When you sign one, you agree that if the business does not pay the card balance, the issuer can come to you personally for it.

Most issuers of small-business cards ask for personal guarantees, often as part of the standard application, sometimes in fine print. That means a business card is not a way to borrow without personal risk. If the business closes with a balance owed, the owner who signed is still responsible.

Some corporate cards do not require personal guarantees, usually because they rely on the company’s own finances. It helps to read the cardholder agreement for the words “personal guaranty” or “personally liable” and to ask the issuer directly. If several owners sign, ask whether each one is responsible for the full balance.

Applying usually involves a check of the owner’s personal credit, which can show up as an inquiry on the personal credit report. After that, what gets reported varies by issuer. In general terms, issuers fall into a few patterns:

• Some report the account to business credit bureaus, such as Dun & Bradstreet, Experian Business or Equifax Business, which can help build a business credit file.
• Some also report the account to personal credit bureaus, so balances and payments appear on the owner’s personal report.
• Some report to personal bureaus only if the account becomes seriously late or goes into default.
• Some do not report to business bureaus at all.

Because policies differ and can change, the only reliable answer comes from the issuer. If a high balance on the card would appear on your personal report, it could affect your personal credit score in the same way a personal card balance would. The personal vs. business credit guide and the build business credit guide go deeper.

Applications vary, but most ask for some mix of the following:

• The business’s legal name, structure and address.
• An Employer Identification Number (EIN), or the owner’s Social Security number for many sole proprietors.
• Stated annual revenue and how long the business has operated. Many issuers accept applications from new businesses, often relying more on the owner’s credit.
• The owner’s personal information and income, for the personal credit check.
• For charge and corporate cards, sometimes business bank balances or revenue history.

You do not always need an LLC or a corporation to apply; many issuers accept sole proprietors. The business formation guide explains the structures.

The terms are where cards differ most. Look for each of these in the card’s pricing information:

• APRs: the purchase APR, any cash advance APR and any penalty APR, and what triggers the penalty rate.
• Any introductory APR, and the rate that applies when it ends.
• The annual fee, if any.
• Late fees, returned-payment fees and foreign transaction fees.
• The grace period on purchases.
• How rewards work, any caps on them, and what happens to unused rewards if the card is closed.

Be wary of any offer that promises approval, charges a fee just to apply, or pushes you to run up the limit to earn rewards.

Questions to ask an issuer:

1. Will I need to sign a personal guaranty, and for how much of the balance?
2. Which credit bureaus do you report to: business, personal or both? Do you report only late payments to personal bureaus?
3. What can make my APR go up?
4. Who is responsible for charges on employee cards?
5. What happens to rewards and the account if I close the card?

The SBA’s fund your business guide (opens in a new tab) and the Federal Reserve’s Small Business Credit Survey (opens in a new tab) put business cards in context with other financing small firms use.