You will often need credit to finance your business as a construction business owner. And with the consistent rise in cashless transactions, credit cards are the go-to option.
Credit cards, however, are of two types: corporate credit cards and personal credit cards. Although you can use both for business, only one is ideal and recommended.
This article will attempt to answer questions such as:
- What is a corporate card?
- What makes it different from a personal credit card?
- And what makes a business credit card better than a personal credit card?
This article aims to help explain the benefits of using your business credit card over a personal credit card for business-related transactions.
What Is A Corporate Card?
A corporate card is a business credit card issued to a business entity. It covers all authorized business-related expenses, including equipment purchases, tools, travel, and supplier payments.
A corporate card is linked directly to your business bank or credit account.
The business, and not the business owner, is solely responsible for the charges made to the corporate card.
As a result, only large companies with sound financial and business histories are considered for corporate cards.
There are many perks to a corporate card.
Asides from rebates and discounts for travel and shopping, your employees each get to have a corporate card on your company's account.
They sometimes grant access to accounting services through which you can track and manage all your business expenses.
Corporate cards work the same way personal credit cards do.
Your business must pay the balance at the end of every billing cycle. Also, credit bureaus will receive your spending patterns and payment records. Therefore, your corporate card usage affects your business credit score.
The application process for corporate cards can often be tedious. In addition, your business's financial records may be required to ensure your business really needs a corporate card. They may go as far as requesting a financial audit. Whatever the case, make sure you have the necessary documents available.
Corporate cards do not check your personal credit, but they may consider that of your business. They also don't require a personal guarantee.
An example of a corporate card is the Toolbox Corporate card. All kinds of contractors can use it to finance their projects. In addition, the Toolbox corporate card offers your team members free cards for general spend or specific projects, as well as an easy-to-use expense management system.
A unique advantage of the Toolbox Corporate Card is that the application process is simplified and built specifically for the construction industry.
Who is Responsible for Debt Payments on Corporate Cards?
Corporate cards vary depending on the liability of debt repayment. The types of corporate cards are:
• Individual liability: The employee holding this corporate credit card is responsible for paying the borrowed funds and any other charge associated with using the card. The employee then files an expense report to the company to be reimbursed for the cost. The company will not cover unauthorized expenses.
• Corporate liability: This type of corporate credit card holds the company solely responsible for paying the balance on the card. It prevents any errors associated with employees paying upfront and later requesting reimbursement. Nevertheless, the personal credit of your employees may be affected if you don't pay for an extended period.
• Joint liability: The company and the employee carrying the credit card are both liable for the expenses made on the corporate card. While your business pays for all authorized transactions, your employees are responsible for personal and unauthorized costs.
Business Credit Card Vs. Personal Credit Card: Differences
The differences between personal credit cards and business credit cards include the following:
- Business credit cards have higher credit limits than personal credit cards. Business credit card providers consider your personal credit and your business' revenue when you apply. However, Toolbox's Corporard card does not require a personal credit check or personal guarantee.
- Business credit card providers can issue free additional cards to all your employees. On the other hand, a personal credit card is meant just for you.
- Personal credit cards do not have the same perks as business credit cards. Additional features like expense management tools and business discounts are more valuable to your company.
- Business credit cards charge higher annual fees. The annual fees on personal credit cards can be as low as $30. But business cards like the American Express Business Platinum card charge an annual fee of $695. However, its benefits include a $200 airline credit and free access to airport lounges, to mention a few. Often, the higher the fees, the more benefits you enjoy.
- Card protection laws are stronger on personal credit cards due to the credit card act of 2009. Your business credit card issuer may increase your APR and charge high late fees. However, Toolbox's Corporard card does not charge annual fees or interest on purchases. A personal credit card is linked directly to your credit score, and that of your business is tethered to your business credit history. Your activity on your business credit cards is reported to the commercial credit bureau, while that on your personal credit card is reported to consumer credit bureaus that track your FICO score.
The Benefits Of Using A Personal Credit Card
- Seamless access to credit: A personal credit card allows you to purchase goods and services even when you do not have money in your bank account. In addition, it helps you settle bills without waiting for your income.
- Zero percent annual percentage rate: banks and other financial institutions that issue credit cards give a promotional annual percentage rate (APR) offer. This offer reduces the cost of using a credit card and can last for more than a year.
- Consumer protection law: This law protects individual customers against unfair service providers. The consumer protection law is usually stronger on personal credit cards. It guarantees reasonable late fees on your card.
- Incentives and rewards: Banks and other financial institutions offer deals and bonuses to encourage credit card use. These incentives include cashback and reward points. As these points accumulate over time, you can redeem them as air miles or use them to pay outstanding charges.
- It helps to build your personal credit: As mentioned earlier, your credit activities are reported to a credit bureau. You can build up your credit by controlling your spending, paying your balance early, and avoiding debts. In addition, a good credit score will guarantee your access to loans in the future.
The Benefits Of Using A Business Credit Card Over A Personal Credit Card
There are many advantages to using a business credit card to pay for business-related expenses.
Here are some benefits of using a business credit card over a personal credit card.
- Lucrative welcome bonus: Busniess credit card providers offer excellent welcome bonuses, and your business can gain a lot from these offers.
- Higher credit limit: Business credit cards have higher credit limits than personal credit cards. You can comfortably handle daily business expenses and pay for some office and field equipment.
- Separates business and personal expenses: Conducting business with a personal credit card makes expense tracking more difficult. It makes it even harder to calculate your taxes and can get you in trouble with the IRS. On the other hand, a business credit card ensures proper financial recording. Additionally, it protects your personal credit score.
- Better business-related perks: Business credit cards offer additional bonuses, including cash back, discounts, and travel benefits. Some come with spend management tools to help your business with financial planning and reporting.
- Opportunity to build business credit history: Using a business credit card properly can help you maintain a solid business credit score. Credit providers look out for this when granting loans and other credit facilities. You must avoid overspending, late payments, and debt accumulation.
- Additional cards for your employees: Business credit cards offer extra credit cards on the same account. Your employees can make use of these for business-related transactions.
- Flexible qualification requirements: Business credit card providers do not require collateral, often required to get a loan and other credit products from banks and other financial institutions. As a result, business credit cards are also much faster and easier to apply for. In addition, the application process doesn't involve most of the hassles associated with traditional loans.
Business Credit Card Vs. Personal Credit Card: Which Should You Choose?
Even though you can use your personal credit card for business, it is not the right choice. For one, it would make obtaining a business loan more complex and generally make you look unprofessional.
Business credit cards are the way to go. They help you to separate your business expenses from your personal expenses and can assist in reducing your tax payment.
You can manage your business finances more efficiently with a business credit card. Moreover, the perks and additional features your business needs are not available on personal credit cards.
Now that you know the benefits of corporate cards, there's no better time to get a Toolbox Corporate card. It is a business card specially designed for all kinds of building contractors and construction companies. You don't have to worry about the hassles of an application process. You can easily apply online and get approved within 24 hours.