How Are Business Credit Cards Different From The Consumer Credit Cards?

A consumer credit card is a credit card that pretty much anybody can get. You can buy Visa and MasterCard credit cards from different financial institutions such as banks, credit unions, community banks, large banks, insurance banks, and finance companies. But business credit cards are very different in the sense that they are supposed to be specifically for small businesses.

So, in other words, they are for people who own a store, who have retailer outlets and for small business owners. Business credit cards and consumer credit cards look very similar to each other. Both have a credit card number, magnetic strip, and the same type of overall layout.

Liability and Credit Reporting

The primary difference between the two types of credit cards is liability and credit reporting. With a consumer credit card, whether you use it online or go to a branch, you are signing to be liable for that card yourself. It means that if you make charges on the card, then you are liable for the debt and if you do not make payments on that card it will be reported on your credit report.

Personal Guarantee

A small business card application is filled out on not only your name but also on your company’s name. So, a company that is essentially applying for the card and is, therefore, liable for the payments of that card. There are many scenarios, however, where the small business owner or the principal is being asked to sign, which is referred to as a personal guarantee.

In this case where you sign for a personal guarantee, not only does this make your business liable for the debt incurred on the card, but the owner or the principal of the company is also personally liable for the debt incurred on the card as well. It means that if a debt is incurred on the small business credit card and it is not paid then the bank not only goes after the company for the payment but they can also go after the business owner or the principal because they have signed to be personally liable for the debt.

Credit Score

When this happens, the bank can employ the same type of activities or tactics that any normal consumer credit card company could employ. This will include: negative credit reporting, outsourcing of the collection of debt to a third-party debt collector, and they can even sue you, not the company but the individual who signed the guarantee for the debt on the credit card. That’s bad news.

However, the good news is also there. It is when the card is being paid on time, and then the credit card activity will not be reported to the principal of the company’s consumer credit report. It is done because in many cases the small business owners use their best business credit cards to fund operations of the business. What happens in this scenario is that the debt that is incurred on behalf of the company ends up showing on the credit report of the owner of the company, and it can cause harm to his/her credit score.

Another thing to keep in mind is that many credit cards have rewards associated with them that have tangible benefits. If you have a small business credit card which has a reward program, the company realizes the benefit of the reward program and the company has to report it as some income or benefit.