Business charge cards vs. business credit cards: Which is best for your business?
Each has pros and cons; consider cash flow, expenses, business needs to pick the right card for you
Making complex credit topics simple
Charge cards are becoming rarer than unicorns these days, but they can still hold appeal for business owners.
Compared to traditional business credit cards, business charge cards can offer superior rewards and benefits, but they may not fit every business’s needs.
If you’re weighing a charge card against a credit card for your business, here are the most important things to consider.
Pros, cons of business charge cards vs. business credit cards
- Charge cards can boost your spending power, but they must be paid in full at the end of each month.
- They may offer superior rewards, but also charge hefty annual fees.
- Each card may affect your personal credit score differently, but you usually require excellent credit to qualify for a business charge card.
- Still unsure as to which one is right for you? Our checklist will help you decide.
Charge cards can boost your business’s spending power
One advantage of charge cards is that they can give you greater flexibility in how you spend for your business.
- The Plum Card® from American Express OPEN has no preset spending limit.
- Neither does The Business Platinum® Card from American Express OPEN or The Business Green Rewards Card from American Express OPEN.
- However, no preset limit is not the same as unlimited spending. It just means that American Express can adjust your spending limit based on your card use, payment history, credit record and financial resources.
Still, a higher spending limit might be tempting if you’re trying to launch your startup, grow an established business or charge a substantial amount each month.
Waris Syed, founder of Mircierge, a concierge service geared toward sports and entertainment professionals, uses the Business Platinum card specifically for its higher limits.
“It allows me to charge large orders or purchases without a worry,” says Syed, who values the flexibility of having no preset spending limit. He also uses his business and personal credit cards to cover expenses, but relies on them less frequently as they have lower credit limits.
Charge cards must be paid off in full at the end of the month
While business charge cards can allow you to spend more for your business, there’s a potential downside.
“A charge card differs from a normal credit in one important area – you generally must pay it off entirely every month,” says Jeff White, editor at Fit Small Business, a small business financing education website.
If you’re charging a significant amount to a charge card each month, you’ll need to have sufficient cash flow to cover the bill once it comes in – if you don’t repay the balance in full by the due date, you’ll get penalized and the account may be suspended.
The Plum card gives you some wiggle room, letting you take up to 60 days to pay with no interest, but that’s not the norm for every charge card.
Mark Aselstine, founder of Uncorked Ventures, an online wine club, required an initial investment of around $10,000 to purchase inventory to fill his first round of orders for the holiday season.
- He chose a business credit card to cover the expense because he knew it would take four to five months to recoup that investment and pay off the balance.
- He’s since switched to The Business Gold Rewards Card from American Express OPEN, a rewards charge card geared toward bigger spenders.
“At first, a credit card made sense and it was better not to have to move money out of other longer-term investments to fund this side of the business,” says Aselstine.
If you’re looking for more purchasing power and the ability to pay over time, you could try a business credit card that offers both.
- The SimplyCash® Plus Business Credit Card from American Express lets you buy above your credit limit, with no over-limit fees.
- The amount above your credit limit must be paid in full each month but you can pay the remaining balance off over time.
Ample rewards... and annual fees
Not every charge card offers rewards, but the ones that do typically adopt a go-big-or-go-home attitude.
- The Business Platinum Card from American Express OPEN offers 5X Membership Rewards points on flights and prepaid hotels booked through AmexTravel.com.
- Members also get 50 percent more points on purchases of $5,000 or more and 35 percent points back when redeeming for flights.
- This card also routinely offers sizable introductory bonuses of up to 100,000 points for new cardholders.
Compare that to something like the Chase Ink Business Preferred, which is a credit card.
- You earn 3 points per dollar on the first $150,000 spent in combined travel, shipping, internet, cable, phone service and advertising purchases each year.
- Everything else earns 1 point per dollar spent.
- Points are worth 25 percent more when you redeem for travel through Chase Ultimate Rewards.
- The current introductory bonus offer is worth 80,000 points.
The rewards are still competitive, but in this example, a charge card is a bit more generous.
On the other hand, charge cards have a disadvantage in the form of higher annual fees.
The Business Platinum Card from American Express OPEN will cost you $450 annually, compared to the $95 you’ll pay for the Ink Business Preferred card.
Aselstine splits the difference and pays a $175 annual fee for the Business Gold Rewards card.
- He earns 3X points per dollar on shipping, which eats up about 15 percent of his business revenue. He uses those rewards points to offset the cost of travel.
- Travel is also a big expense for Syed, but he says the travel extras offered by the Business Platinum Card from American Express OPEN make the fee worth it.
- Those extras include a $200 annual airline fee credit, worldwide airport lounge access, hotel upgrades and fee credits for Global Entry or TSA Precheck.
Whether you’re justified in shelling out a higher fee to earn more rewards with a charge card depends on how often you spend, the kind of rewards you can earn and how you plan to use them.
“The best fit for your business’s needs is likely going to be a card that gives you the most rewards for the types of purchases you make the most,” says White. “If you’re not planning on using your card very often then a charge card likely isn’t the right choice for you.”
Don’t forget the credit score implications
Maintaining good personal and business credit is important for establishing relationships with vendors or if you think you might need to get a business loan at some point. Business charge cards and credit cards can affect your credit differently.
With a charge card, you’re not carrying a balance each month, so your credit utilization doesn’t have the same impact on your score as it would with a business credit card.
That’s a plus, but using a charge card could backfire.
“Charge cards can be riskier for businesses that struggle with cash flow,” says White. “Missing a payment by a day or not being able to pay off the entire amount can cost you dearly on your credit report.”
- A business credit card doesn’t come with that same pressure to pay in full, but carrying high balances from month to month could hurt your credit utilization and score.
- There’s also another credit factor to consider if you’re torn between a charge card and a business credit card: how likely you are to be approved.
Your personal credit history is used for approval with both cards – especially if your business is organized as sole proprietorship – but you’ll typically need an excellent score to land a premium business charge card.
If you’re just outside the excellent credit range, you may have a better shot at getting a business credit card instead.
Business charge cards vs. business credit cards: A checklist
Business charge cards and business credit can help your business in different ways. If you’re not sure which one to choose, use this checklist to help you decide:
- Review the rewards. Look at the kind of rewards being offered (miles, points, cash back), the rate and whether a charge card or credit card caps the amount of them you can earn.
- Compare rewards and perks against the annual fee. Both are great but every penny you pay for an annual fee diminishes their value. Run the numbers to see what a charge or credit card’s total value comes to, once the fee factors in.
- Check your monthly spend. How much does your business spend each month? Look at your budget to see if you really need the higher spending limit a charge card could offer.
- Add up your business cash flow. Is your business generating enough revenue to pay your charge card in full each month? If not, you may want to stick with a business credit card for now, then think about upgrading to a charge card later.
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