For larger small businesses, getting a corporate card, like the ones big corporations issue to employees, often makes sense. Corporate cards offer features small business cards don’t. But they’re generally available only to businesses with at least several million dollars in annual revenue.
Dear Your Business Credit,I am thinking about applying for credit cards for my employees. Should I get a corporate card or a small business card? – Jake
Whether your employees fly a lot and need a card to reserve plane tickets or they purchase lumber or office supplies for the company at the store, getting them a company credit card is often a great way to keep track of expenses and make it easy for them to purchase what’s needed.
For many entrepreneurs, a small business credit card is the best solution. Many are designed to reward the types of purchases that employees typically make in a small firm.
However, for larger small businesses, getting a corporate card, like the ones big corporations issue to employees, often makes sense.
These cards are generally available only to larger small businesses, meaning those with at least several million dollars in annual revenue. A company may have to submit a federal tax ID and undergo an audit of its financials to qualify.
Both corporate and small business cards offer conveniences such as the ability to set limits on employees’ spending and to restrict spending to certain categories. Most also offer features that make it possible to track expenses easily.
However, corporate cards come with certain benefits that small business cards don’t offer, as we’ll get into.
See related: How to get a business credit card
How corporate cards differ from small business credit cards
Responsibility for the debt
Typically the owner of a small business must personally guarantee a small business card, though some small business cards come with joint and several liability, where the owner shares liability with the business. With joint and several liability, a creditor can pursue either the business or the owner for a debt.
With most corporate cards, the company is generally liable for the debt on employees’ cards, which is a big advantage in the eyes of many owners. When the company guarantees the debt, the owner is not held responsible if, for instance, the company fails without paying its bills.
Some corporate cards also offer what’s known as individual liability. That means the employee must stay current on paying the bill in the short term and request reimbursement upon filing an expense report. This is less common than it used to be. It’s not necessarily ideal for employees, who may not have the cash available to pay for large charges until their expense report is processed.
Effect on employees’ credit
With small business cards, employees are considered authorized users. As a result, their card activity may be reported to credit bureaus.
For some employees, this is a drawback. For instance, if they have put expenses from a costly business trip on their card, they may find their credit utilization is high enough to affect their personal credit. That could be a problem if, for instance, they are applying for a mortgage.
In contrast, with a corporate card, card usage does not affect employees’ personal credit. That is a big plus from an employee’s point of view.
Some small business cards will allow an owner to add cards for employees for free. Corporate cards generally charge for this and may charge as much as $100 a year or more. This is because they often offer more robust features, like access to a specific sales rep or access to enterprise software for filing expense reports.
Of course, if you run a larger small business, the extra benefits may be worth it. It all depends on the needs of your business.