Credit Card Options for Small Businesses

Most people are aware of some of the credit cards that are available to consumers in the US, but not many business owners are aware that there are credit cards that are designed specifically for small business owners. These cards are referred to as small business credit cards or simply business credit cards. The majority of these business credit cards are issued by large credit card issuers who also issue consumer cards. So it is not surprising that many business credit cards work very similar to consumer credit cards. But there are some variations in the credit cards available for small businesses. In this post, we are attempting to summarize some of these credit card choices for small businesses.

Why a business card?

We strongly recommend not to put your business expenses on the same card where you put your business expenses because it complicates your tax filings. Typically, a business card comes with a higher credit line when compared with a personal credit card. So you want to use them for your business expenses.

Business Credit Cards

As I mentioned in the introduction of the post, these credit cards are very similar to consumer credit cards that are issued by major credit card issuers. Just like their consumer counterparts, these credit cards come in two flavors – issuer branded (e.g. Chase, Citi, etc.) or co-branded (e.g. Southwest Airlines business credit card from Chase, American Airlines business credit card from Citi, etc.) These credit cards have a predefined credit limit. You do not have to pay the entire amount (pay in full)after the statement is generated. If you choose to, you can pay an amount equal to or more than the minimum due amount. You can revolve the rest of the balance and pay interest on the revolving amount.

Issuer branded business cards:

Issuer branded cards are usually good for every small business. They work like consumer credit cards. You will be able to add your employees and give them to make purchases. Many of the cards come with rewards – you can earn points or cash. Some cards come with an annual fee and some without. You have to decide which works better for you. Usually, cards with an annual fee have additional benefits or better rewards earn. For a small business owner who has a few employees to who you would like to give a credit card, you should pay attention to the controls that the card provides. These controls avoid the future headache that comes with the misuse of the card by employees.

Co-branded business cards:

Cobranded business credit cards are very similar to issuer-branded business credit cards. The only difference is that usually, the issuer (e.g. American Express or Chase) issues this card in a partnership with a non-credit card issuer. For e.g. American Express and Delta Airlines have partnered together to issue Delta SkyMiles(r) credit cards. Almost always, these cards have two brands on the plastic itself, hence they are called cobranded. One is the issuer brand and another is the partner brand. For e.g. Delta SkyMiles credit cards have both the Delta Airlines logo and American Express logo. The card is completely managed by the issuer – from application to servicing and closing. The non-card partner is usually the main distribution channel. Cardholders earn the rewards in the partner’s loyalty program.

Business Charge Cards

This category of business cards is also similar to their consumer siblings. The main difference between business charge cards and business credit cards is that the former does not allow you to revolve your balance. After each statement cycle, you are expected to pay the entire balance to the card issuer. American Express is one of the biggest issuers of charge cards. For e.g. the Business Platinum Card from American Express is a charge card.

Fleet Cards

Fleet cards are a unique and specialized category of cards. Traditionally, these cards are for businesses that have a fleet of vehicles and have many drivers who need to fuel these vehicles. Fleet cards are a sub-category of commercial credit cards but fleet card issuers have created a version of the fleet card to target small businesses that have a few vehicles and drivers. As the name suggests, these cards were initially intended to facilitate the purchase of fuel – gasoline, diesel, etc.

Fleet card vs. other business credit card

You may be asking, why my driver cannot use a regular business credit or charge card to purchase fuel. Well, you could use a regular business card but your employee/driver could also buy anything else they like because general business credit cards are open to all types of purchases. However, lately, some card issuers have added capabilities that give control to the businesses to restrict the purchases on employee cards. The advantage of Fleet cards is that these very restricted cards, they can be set to only allow the purchase of fuel at certain gas stations. So you don’t have to worry about your employer/driver buying something that you don’t want them to buy. These cards could be set to only allow purchases at the pump and not inside the store at the gas station. Or, only allow the purchase of fuel.

Fleet cards usually come in four flavors – issuer proprietary fleet cards, open network cards, gas company-branded proprietary cards, and cobranded gas company open network cards.

Issuer proprietary fleet cards

Fleet card issuers like Wex and Fleetcor/Comdata have their own network, where they have negotiated directly with various gas stations or gas stations networks. These cards work only at those gas stations and provide various degrees of control. Due to the direct relationship between the merchant and the issuer, these cards could provide special pricing as well. A word of caution, there are usually some hidden fees or complex pricing that comes with these types of cards. So always check your contract, your receipt, and your card statement to make sure you are getting the pricing you were promised.

Open network fleet cards

These are the cards issued by fleet card issuers that have Mastercard or Visa logos. Even though there is a Mastercard logo, these cards are restricted to work only at gas stations, but these cards could be opened by the issuer to work at more merchants or everywhere Mastercard is accepted. So while proprietary fleet cards work only at the partner gas stations ( and a few more merchants), Open network cards could be configured to restrict at certain merchants or could be open to all merchants.

Oil company-branded fleet cards

Gas/Oil companies like BP, Shell, etc partner with major fleet card issuers to issue a fleet card that has Gas/Oil companies’ branding and only works at the same brand gas stations. These cards are very similar to the proprietary fleet cards but have the oil company branding and work only at the gas stations in that company network. For e.g BP Fleet card issued by Fleetcor.

Oil company cobranded fleet cards

Oil companies work in partnership with the major fleet card issuers to issue fleet cards that have Mastercard logos. These cards work at the branded gas stations and could be opened to work at other places. Depending on the configuration and the deal between the Oil company and the fleet card issuers, these cards may or may not work at other brand gas stations. If they work at other card stations, there may be a fee or surcharge added to the fuel price to discourage cardholders from using the card at any brand other than the brand on the card.

In another post, we will write more about which cards to choose based on your needs.