Many entrepreneurs rely on credit cards to keep their small businesses running – here’s what business credit card statistics show about business spending.
The COVID-19 pandemic dealt a harsh blow to businesses across the country. Now that restrictions are lifted and more people get vaccinated, retailers, restaurants and businesses are reopening. As always, business credit cards have proven a valuable tool for entrepreneurs trying to build (or rebuild) credit and smooth over cash flow issues. But use of credit cards is also causing problems for some.
Small business spending is increasing with the surge in consumer demand as COVID-related limitations roll back, according to a 2021 Visa report.1 With that increase in business spending comes a quarter-over-quarter increase in outstanding balances on small business Visa credit cards. Here’s what you need to know about recent small business funding, credit card spending and capital use:
- In 2019, 53% of businesses reported using credit cards as an external source of funding.2
- 80% of businesses expected to face financial difficulty in the next 12 months, and 32% cited credit availability as a pain point.3
- In 2020, 21% of businesses sought funding via business credit cards.3
What is a business credit card?
A business credit card is much like any other credit card, except it’s created and structured specifically for business use. Business owners who use this type of account have a revolving credit amount they can charge to the card and pay off over time, while incurring interest charges, or pay in full.
However, there are key differences between personal credit cards and business credit cards:
|Business credit cards
|Personal credit cards
Because businesses have to spend money to make money, business owners generally have higher credit limits on their business credit cards than they would on personal credit cards. The most recent data available shows that the average limit for business credit cards is $56,100 and the average credit limit for personal credit cards is $26,900.4
Business credit card market
While pre-pandemic predictions reported enormous growth in the business credit card market, the pandemic’s travel restrictions slowed business travel and thus, business purchases. However, business credit card market forecasts indicate that business credit card spending will bounce back by 2023.5
The corporate credit card market was estimated at $14.1 billion in 2020 for North America.6
In 2018, the largest small-business credit card issuers by purchase volume were JPMorgan Chase ($82.7 billion), Capital One ($56.8 billion), Bank of America ($40.6 billion) and Citibank ($29.8 billion).7
How small-business owners use their cards
In the early months of the coronavirus pandemic, government-sponsored Paycheck Protection Program (PPP) loans actually helped businesses avoid credit delinquencies and reliance on business credit cards to fund operations. However, after PPP loans ran out, a slight increase in card utilization and delinquencies occurred, according to Moody’s Analytics and Experian’s Q3 2020 report.9 This indicates that small businesses tend to turn to credit lines and business credit cards for operational funding needs.
Male business owners are more likely to use business credit cards, making up 78% of the commercial credit shoppers in 2018.10
The average business credit balance was $30,919 and the average utilization rate was 35% in Q3 2020.8
Business credit card features
Although business credit cards differ from personal credit cards, it’s still common to see business cards come with perks like statement credits, purchase protection, zero liability and more. However, business credit cards go one step further to provide more benefits and features aimed specifically at business owners.
Rates on business credit card offers tend to be below the national average for general purpose cards. In early October 2021, the average business credit card APR for new accounts was 14.16% while the national average was 16.16%.12
Business credit cards usually have cash back or points rewards that business owners can accumulate on purchases.
Furthermore, you’ll typically see higher credit limits on business credit cards on average, which is why it’s a good idea to use a business credit card rather than personal credit when starting a venture or expanding your operations. The costs of running a business can add up and you don’t want it to impact your personal credit history or max out your credit lines.
Small-business card regulations
The federal Credit CARD Act of 2009 established new protections for consumer credit cards, but business cards were excluded from the law and do not have the same protections.13 As a result of being excluded from the CARD Act, business cards have higher fees than consumer cards. CreditCards.com found that only four of the 100 surveyed cards charge over-limit fees, and all of them were business credit cards.6
Furthermore, many card issuers require much more information from applicants who apply for business credit cards than personal ones. For example, you may have to provide information including:
- Business entity or legal structure
- Federal tax identification number
- Time in business
- Number of employees
- Annual revenue
- Estimated monthly costs and spending
- Personal and/or business credit history
- Personal guarantee
While business credit cards are used for the business, many small-business owners are required to provide a personal guarantee. Personal guarantees are like co-signing your business credit card – if the business defaults on the card, you are personally liable for the debts and payments as the owner. However, some business credit cards do not have personal guarantee requirements.
Business credit cards are essential to running and expanding ventures. As the saying goes, sometimes you have to spend money to make money. While the commercial credit card industry and business spending bounces back after the effects of coronavirus, it’s important to understand the business credit card market and how to properly use business credit cards.
- Small Business Outlook. Visa, 2021.
- Small Business Credit Survey. Federal Reserve Banks, 2020.
- Small Business Credit Survey. Federal Reserve Banks, 2021.
- The Face of Small Business. Experian, 2016.
- Predictions for the International Commercial Credit Card Market. Payments Journal, 2021.
- Global Credit Card Market Report 2021. The Business Research Company, 2021.
- Corporate Cards Market Size to Grow 7.3 Percent CAGR in 2020-26. Beroe, 2021.
- The Nilson Report, Issue 1155. Nilson Report, 2021.
- Q3 2020 Experian/Moody’s Analytics Main Street Report. Experian/Moody’s Analytics, 2020.
- Women in Business. Experian, 2019
- Annual Survey of Entrepreneurs. United States Census Bureau, 2017.
- CreditCards.com Weekly Rate Report. CreditCards.com, 2021.
- Credit CARD Act of 2009: What you need to know. CreditCards.com, 2021.