5 ways business credit cards can help startups

Borrowing tips

Starting a business can feel overwhelming — there’s a brand to develop and seemingly endless tasks to juggle. As you get your company off the ground, you might find yourself in need of extra capital to make ends meet and a business credit card could help you bridge that startup gap.

You might be tempted to pay for business expenses with a previously established personal card, but a business credit card creates a bit of a barrier between you and your company.

As long as you’ve established yourself as a corporation or an LLC, having a business credit card makes the business — as an entity — responsible for paying back debt, rather than you personally.

From cash back rewards to travel benefits to a financial cushion when an unexpected business need pops up, there are a lot of very convincing reasons to sign up for a business credit card.

Related: How to avoid cash flow problems at your business in 4 steps

5 ways business credit cards can help startups

Here are five reasons a startup might consider taking advantage of a business credit card:

  1. Simplified expense tracking.

  2. Access to credit whenever you need it.

  3. Building business credit for your startup.

  4. Protection from security breaches and fraud.

  5. Perks and rewards.

Read on to learn more about each benefit and how it could help your business.

1. Simplified expense tracking

Manually keeping track of your cash flow can be time consuming and messy. Luckily, several credit card options simplify expense tracking. For example, this business credit card from American Express offers a year-end report that categorizes spending by month and purchase type, which makes it easy to keep detailed records of your business expenses. Some cards also connect with accounting software such as QuickBooks to help streamline many of your accounting needs.

Many business credit cards also offer employee credit cards with no annual fee and rewards simply for using the card.

You can set alerts and caps on spending, and receive summary reports on usage. As your business expands, every minute of precious time saved can be a lifesaver.

Related: Getting smart about credit card access

2. Access to credit whenever you need it

Business Credit Card Startup ATM

Though there are spending limits, a business credit card for your startup allows you to be less constrained when it comes to how you use borrowed funds. Though business loans have definite benefits, a business credit card allows for smaller, daily purchases on an as-needed basis.

With a business loan, you borrow a set amount and pay it back regardless of how much you use. With a business credit card, you only have to spend as much as you need for your startup and don’t pay interest until you actually use the funds.

Related: How lenders decide if you can afford a small business loan

3. Building business credit for your startup

It’s important for a business to have stellar credit in order to grow. As your business grows, it will get its own credit score just like you, as an individual, have your own credit score. You want your business credit score to be strong (just like your personal score) and some business credit cards can help you do just that.

If your focus is to build business credit, keep in mind only some business credit cards report to business credit agencies, so it’s a good idea to check before you apply.

Also note that while business credit and personal credit work similarly, business credit is calculated slightly differently. There are three major entities that calculate your business’s credit score: Equifax, Experian, and Dun & Bradstreet.

They each use various formulas to determine how well your company handles debt, and how responsible you are with spending. If you ever decide to apply for a business loan in the future, a healthy business credit score could help you get approved depending on the lender you work with.

Related: How can you build business credit?

4. Protection from security breaches and fraud

When dealing with finances, security is crucial and fraudulent spending is always a risk. Luckily, most business credit cards come with built-in security to help protect you and your startup from unwanted purchases.

Most cards will secure all of your purchases, protect you against security breaches and send you instant alerts if there’s ever suspicion of a fraudulent charge.

Plus, most credit card companies won’t charge you for the fraudulent purchases. This security can help keep your mind at ease that even if you’re juggling a million things, your finances will be protected.

5. Perks and rewards

Business Credit Card Startup Travel

If you have to spend a lot of money on that broken AC unit in the office, you should at least earn a few rewards from that purchase, right? Though perks don’t necessarily mean that you’ll always get a free vacation, every little bit counts when you’re a small business watching your finances.

Plus, many cards offer a bonus reward just for signing up. For example, this business credit card currently offers 80,000 points just for spending $5,000 in the first three months after opening your account. That can translate to about $1,000 worth of travel rewards when booked through their portal.

Every card will offer different types of cash back or reward bonuses, so it’s a good idea to decide how you’ll use your card the most. For example, if you spend a lot of money entertaining clients, a card that offers bonus points on restaurants can earn you a lot of dough over time.

By learning the rules and bonus categories and working them in your favor, you can find ways to take advantage of your card to the fullest extent.

Related: How to get the most value out of your business trips

Summing it up

A business credit card can benefit many small business owners. It can help you keep your personal and business expenses separate, build your business credit score, and give you access to funds whenever you need it most.

That being said, there are some instances where a business loan is the better option. But when a business loan isn’t right for your startup company, a business credit card can act as a stepping stone to more funding as you get off the ground.

The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Meredith Wood
Meredith Wood is the Editor-in-Chief at Fundera, an online marketplace for small business loans that matches business owners with the best funding providers for their business. Prior to Fundera, Meredith was the CCO at Funding Gates. She is a resident Finance Advisor on American Express OPEN Forum and an avid business writer. Her advice consistently appears on such sites as Yahoo!, Fox Business, Amex OPEN, AllBusiness, and many more. Meredith is also the Senior Financial and B2B Correspondent for AlleyWire.