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Why Should You Use Small Business Credit Cards?

Although getting yourself up to your eyeballs in debt is not one of the reasons to use a small business credit card, there are many valid reasons that small business credit cards can be useful to you, specifically:

  1. Better cash flow management
  2. Build business credit
  3. Separate business from personal expenses
  4. Easily itemize transactions
  5. Rewards and incentives
  6. Manage employee spending

After you have learned about the benefits of small business credit cards, we’ll also cover how these companies make money. And before we get there, we’ll hopefully dispel a myth that credit card companies are evil (or at least most of the time they are not).

Better Cash Flow Management

If you are familiar with the idea of discounted cash flows, the benefit of small business credit cards is obvious. If you can pay expenses later, that’s a good thing because that means you have the money with you longer earning cash (via interest earned in a bank) or being used for other productive business purposes. Small business credit cards enable you to do this. They give vendors the ability to get money from you today, but for you to not have to outlay cash until your statement comes out followed by usually a 20 or so day grace period from end of the bill cycle to payment being due. We don’t recommend you maintain a balance on a card so pay it off in full, if possible, but use the grace period to let your money stay with you and do more for you.

Build Business Credit

Similar to your personal credit, you can establish a history for business credit and small business credit cards can help you do this. This becomes increasingly useful down the road when you may want to seek other forms of financing, i.e. business loans or lines of credit.

Separate Business from Personal Expenses

Keeping your business and personal expenses is a good idea from an administrative perspective. Decoupling them at tax time is painful. More importantly, not bifurcating your expenses into business and personal on separate accounts or credit cards can create tax problems.

Keeping them separate lets the IRS know you’re committed to your business and creates a clear boundary between personal and business expenses.

Easily itemize transactions

Keeping every little taxi and restaurant receipt is what you should do but the shoebox of receipts is a pain in the arse. A small business credit card helps you organize your expenses by providing a paper trail of expenses. You can download statements to see where you spent. Many of the card companies also provide annual statements that itemize expenses into different categories based on where you spent. And finally, if you use accounting software, you can usually hook your software up with your online account and download transactions removing the need to manually key tons of data.

Rewards and incentives

With competition for small business credit card holders at a fever pitch, the rewards which range from cash back to discounts to points for travel and merchandise are diverse and will likely have something you like, and if you play your cards right, they can be quite valuable. You can get discounts in some instances for using the card to buy office supplies, gasoline or wireless services.

Manage employee spending

The small business credit card companies provide the opportunity to get supplemental cards which you can provide to employees to track their spending. Many card companies offer the ability to set up those supplemental or employee cards with spending limits. You will get separate statements typically so you’ll need to monitor their spending. Certain commercial cards (for larger companies) will allow you to limit the type of merchants that the card can be used at.