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Corporate vs. Business Credit Cards: Which Is Best for Your Bottom Line?
Corporate and business credit cards are two distinct animals. The corporate credit card is issued to very large businesses, generally with revenues of several million to billions of dollars. The liability for nonpayment of the card bill rests with the company, not an individual.
The business credit card is a more widely serviceable product and applicable to companies of all sizes, from mom-and-pop enterprises to limited liability companies with several million dollars in billings. Find out the details, fees, and pros and cons of both types of cards to determine the right product if you plan to start a small business — or if you already have a venture that is up and running.
Understanding Corporate Credit Cards
Before enrolling in a corporate credit card, you need to know more about this spending tool so you can better decide if it’s the right option for your needs.
What Is a Corporate Credit Card?
A corporate credit card is designed with the large, multimillion-dollar corporation in mind. In contrast with business cards, corporate credit cards do not require a personal guarantor. To obtain a corporate credit card, the firm presents its tax ID and corporate financial records to the credit card issuer for a corporate financial review.
Should the corporation fail to pay its credit card obligations, the corporation will be liable, rather than a specific individual.
Read: Business Loan or Business Credit Card: Which Is Better?
When Is It a Good Idea to Use a Corporate Credit Card?
Major corporations with hundreds of employees can streamline and monitor employee expenses with the corporate card. Corporate credit cards are a way for companies to track employee business, travel and petty cash expenses.
For example, a company might have employees who travel frequently on business across the country and internationally. If these employees used their own personal credit cards, they would need to complete an expense report and wait for reimbursement from the company. That could take weeks.
By using a corporate card, expenses are categorized and analyzed by the company. All the employees need to do is turn in the original receipts and avoid charging personal expenses on the company card.
Pros and Cons of Using a Corporate Credit Card
A corporate credit card often makes sense for large businesses. However, it’s important to weigh the pros and cons of these cards before enrolling.
Advantages of using a corporate credit card include the following:
- Corporations can use corporate credit cards to improve reporting and record-keeping.
- Corporations can better monitor and analyze employee spending.
- Corporate credit cards might come with special benefits, such as travel and emergency assistance services.
- Corporate credit cards give employees a streamlined method to pay for business expenses.
- Corporate credit cards typically offer the help of dedicated customer service representatives.
The disadvantages of using a corporate credit card include the following:
- Card costs and fees might outweigh benefits.
- Corporations must closely monitor to make sure employees do not use the card for personal expenses.
- Some lenders run credit checks on employees who receive corporate credit cards.
- Employees lose the opportunity for rewards, miles and other benefits that might accrue when they use their own personal cards.
Corporate Credit Card Fees and Costs
Corporate credit card fees, charges and interest rates vary by provider and type of card. In general, the spending cap per card is flexible and arranged with the card provider.
For example, Capital One offers the Corporate Plus Card and the Corporate Ultra Card. These cards offer a 14-day or 30-day billing cycle, a seven-day grace period, and rebates on purchases. They charge no annual fee for the first year. The fee is $400 for each subsequent year, but it’s waived with $200,000 in annual spending. The payment is due in full each month, with a late fee of 1.5 percent and a returned-payment fee of $39.
A representative at the American Express corporate credit card department described company’s corporate credit card as having no interest charges, no maximum limits and a balance that must be paid in full within 30 days. Additionally, there is a 60-grace period that is free from interest or fees.
Three levels of cards exist, determined by their benefits. Annual
fees range from approximately $55 per card for the Green card up to $390 for the Platinum card. Finally, American Express corporate cards do not allow for lines of credit.
Understanding Business Credit Cards
Business credit cards differ from corporate cards in some key ways. Know the differences so you can determine which card is right for you.
What Is a Business Credit Card?
A business credit card is designed for smaller companies. For example, a business credit card might be suitable for a smaller S-corporation, limited liability company or partnership. This type of card might be used for a wide range of business expenses, and can help the business build a credit history.
Liability is a key difference between corporate and business credit cards. With a business card, a key person is responsible for card payments.
Finally, unlike corporate credit cards that are normally used by employees to pay for work-related expenses, business credit cards might be used by both owners and employees for a wider range of business expenses.
Read: Best Business Card Offers of 2016
When Is it a good idea to use a business credit card?
Small-business credit cards are useful for helping smaller-sized and medium-sized companies make many business-related purchases. Although 65 percent of small businesses regularly use credit cards, only 50 percent of the cards actually feature the business’ name, according to the Small Business Association.
Business owners and employees should use a business credit card when purchasing items for work. That way, the firm can separate business and personal expenses. Ownership of a small business is risky, so it is important for entrepreneurs to avoid risking their personal credit on business expenses.
Pros and Cons of Using a Business Credit Card
Business credit cards tend to make sense for smaller businesses. However, that doesn’t mean every small business should get one. Know the pros and cons of these cards before enrolling.
The advantages of using a business credit card include the following:
- Business owners and employees have the opportunity to buy work-related items and pay off the balance over time.
- The business can develop a strong credit profile, which can help with future capital funding needs.
- Business credit cards offer spending reports that can improve record-keeping.
- Business credit cards can offer higher spending limits than personal credit cards.
- Because of the variety of providers and types of cards, low- or no-fee cards might be available.
The disadvantages of using a corporate credit card include the following.
- Employers must monitor employee business cards for fraud and misuse.
- Business credit cards might be subject to a higher annual percentage rate than personal credit cards due to additional perks and benefits.
Business Credit Cards Fees and Costs
Business credit card costs and fees vary by provider. According to the representative at American Express, that company’s small business credit card is available to companies with an employer identification number. In addition, applying for the card does not require any financial documentation. The application can be completed and approved within five minutes. American Express offers a zero-fee card to businesses that can provide proof of a two-year history of existence.
The business credit card’s interest rate varies based upon market conditions. The American Express small-business charge card, which requires payment in full at the end of the month, has a 30-day billing cycle and doesn’t have interest charges.
Read: Should I Get a Business Credit Card?
Which Is the Right Solution for You?
Unless you’re an employee of a major corporation, the business credit card is the most flexible and affordable work-related credit card. There are scores of types of business credit cards that offer low or no annual payments, as well as generous rewards programs. In addition, corporate cards tend to be more expensive and are geared toward the largest major companies.
In sum, business credit cards offer a low-fee, high credit limit business solution. The only potential drawback of the business card is that an individual of the company is personally liable for any delinquent payments.
Ultimately, regardless of which type of credit card a business chooses, the Fair Credit and Charge Card Disclosure Act affords consumer protections mandated by the government that the card issuer must follow.
Category: Business card