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Credit Cards vs. Debit Cards: What’s Right for a Business?
February 04, 2021
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Credit Cards vs. Debit Cards: What’s Right for a Business?

As a business owner, you have many choices when it comes to almost every aspect of your company’s finances. This is particularly true when it comes to choosing whether to manage your daily spending with a credit card or a debit card.

In fact, Wallethub lists that there are more than a dozen credit card companies, and those are just the largest ones. However, before you can compare credit card companies, you’ll need to decide whether it’s best to choose a credit card or a debit card for your business.

Although they seem similar at face value, credit and debit cards are very different. In this post, we’ll explain what you should know before choosing a credit or debit card to support your small business.

How Are Business Credit Cards and Debit Cards Different?

Credit Cards for Business:

Like personal credit cards, business credit cards offer you the ability to borrow money from the bank. In return, you promise to pay the balance off each month.

There are many types of credit cards that can be issued to your business, and each one offers different benefits. Standard credit cards extend a simple line of credit, whereas some credit cards offer cashback or rewards if you spend a lot of money on business expenses.

What Are the Benefits of Small Business Credit Cards?

Rewards can be an advantage when it comes to using a corporate credit card for your business. If you use your credit card frequently and pay off your balance in full at the end of every month, those rewards can save you money in the future. Plus, many credit cards come with a statement credit, which can be a huge plus for small business owners.

If your business has specific areas that you spend money on, you can choose a rewards card that helps you earn more for that type of expense. For example, frequent business travelers can get a card that offers travel rewards. By using your business credit card for frequent expenses, you’ll earn travel points after you spend, helping you save money on future purchases!

Another common business credit card reward is on office supply spending. There are many cards that offer additional reward points when business owners spend money at office supply stores. If you’d like to maximize your points in this area, it’s worth researching.

Security and consumer liability are another plus for credit cards. If you see something wrong and report it quickly (such as a charge you didn’t make on your business card), your responsibility for the loss is minimal.

Another benefit of using a credit card for business purchases is that you can build your credit history. This is crucial, because establishing a good business credit score will help you secure loans, obtain better interest rates, and have an overall financially sound business. Just like a personal credit score, your business credit is a crucial factor that you should consider when taking out a new funding source.

What Are the Downsides of Business Credit Cards?

Since corporate cards are a form of borrowing money, you may accumulate debt. If you do this, you’ll have to pay off expensive interest, in addition to your large balance.

In addition, facing a large credit card balance at the end of every month with insufficient funds to pay it off won’t be good for your business’s finances.

Annual percentage rates (APRs) can be quite high, so even if you pay the minimum amount that’s due each month, you’ll still pay interest charges, which will offset your card’s rewards.

As previously mentioned, accumulating debt can hurt your business’s credit score as well. If you are concerned about this, you should ensure that you monitor your spending. At the start of each month, pay off your credit card balance and set a spending goal for the next month. If you find that you’re exceeding your budget, you may need to re-evaluate your spending in order to protect your business’s financial future.

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Debit Cards for Business:

With a debit card, you can withdraw money directly from your bank account. In this way, using a debit card is very similar to using cash, since you can only spend an amount that you have in your checking account. If you try to spend more than you have in your bank account, you could be hit with overdraft fees.

What Are the Benefits of Business Debit Cards?

One of the best parts about using a debit card as a spending mechanism for your business is that you don’t have to pay interest. The funds come directly from your account, and there’s no borrowing involved, which means you won’t risk accumulating debt.

In general, debit cards incur no fees, although some carry minimal fees. For example, as previously mentioned, if you try to withdraw more money than the amount you have in your account, you could be hit with an overdraft fee.

Using debit cards is also a great way to avoid debt and control your spending habits. Since you’re drawing from pre-existing funds, it’s difficult to spend outside your means.

What Are the Downsides of Business Debit Cards?

Security and liability concerns are a significant downside with debit cards. If a thief gains access to your debit card and pin, they can steal money from your account in seconds. Since debit cards typically don’t have fraud protection like credit cards, it’s less likely that you’ll get your money back.

Due to this lack of security, it’s paramount that you keep your debit card safe. Although many business owners provide corporate cards to their employees, you shouldn’t give them access to your business debit card. By keeping your card information secure, you can lessen the likelihood of fraud or unapproved spending.

In addition, while some debit cards offer cashback and other rewards, most don’t offer these types of perks. These types of cards are rare, and often charge fees that make the offer less appealing. If gaining access to a card rewards program is important to you, it’s likely better to pursue a credit card.

Conclusion: Which Business Card is Right for Your Business?

It’s difficult to give a definitive answer to this question because every business’s financial situation is unique. You must evaluate your own business needs and choose a card with advantages that outweigh the negatives.

Choosing a business credit card might be worthwhile If you’re disciplined with money and already have secure business finances. Plus, you could gain access to rewards programs, which could help your business save money on future costs.

However, if you’re not sure you can limit your spending, you should start with a debit card. By doing this, you won’t accumulate debt like you could by using a business credit card.

If you need help reviewing your spending, ask your business accounting team to monitor charges to ensure that you aren’t overspending. Although budgeting can be challenging, it’s the key to running a strong business. Without it, overspending with your credit card could occur without you even realizing it.

If you’re still uncertain about your decision, have someone you trust help you analyze your financial situation, such as a financial advisor or business coach. They may be able to help you decide on a financing option that’ll fit your business.

We hope that this post has helped you decide between these two popular business funding options. Although it can be a daunting decision, remember that it isn’t a permanent one, and you can always try out a different card in the future.

For example, perhaps you start with a debit card, but find that a credit card with rewards could be better for your business. In many cases, the card provider that gave you the debit card might be able to provide you with a credit card that fits your current needs.

If your business frequently uses a business debit or credit card, share your tips with us in the comment section below!

Editor’s Note: This post was updated for accuracy and comprehensiveness in February 2021.

Fora Financial

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].