What you need to know about business charge cards

What you need to know about business charge cards

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You spend money to make money. But are you spending your money in the most effective way possible? Charge cards provide businesses with another option for managing company spend and earning rewards for the business purchases you’re making.

Today we’re breaking down what you need to know about charge cards, why you might use them, and which charge cards to consider for your business.

What is a charge card?

Charge cards allow you to spend with credit (like credit cards) but must be paid off in full at the end of every cycle (unlike credit cards).

Charge cards allow for flexible business spending and lucrative rewards and perks, but require payment in full at the end of the repayment period. This repayment period can vary based on your card issuer and the type of charge card, but are usually between 30-60 days. Failing to pay your outstanding balance each billing cycle can saddle you with harsh penalties and interest fees from the card issuer.

The flexibility of a charge card makes it ideal for short term business cash flow, as well as managing employee spending. Depending on the credit limit of the charge card, it can also be a good option for building business credit.

Credit scores for business charge cards

Business credit scores are relevant for obtaining business funding through credit cards, loans, equipment purchasing, real estate or leasing, and vendor agreements. Your business credit score is different from a personal credit score, but still communicates your overall business health and trustworthiness to lenders.

Charge cards typically require a credit score around 670 to qualify, but there are some card issuers who offer charge cards designed for credit scores below the 670 threshold. While these cards can help you build business credit, they might require a spending limit.

Do you know how your business credit scores are calculated? Check out our business credit score guide.

How do business charge cards affect my credit score?

The biggest difference in the way business credit cards and business charge cards affect your credit score is the element of credit utilization.

Credit utilization refers to the amount of credit at your disposal, and what percentage of that available credit you’re currently using.

Your credit utilization makes up about 30% of your credit score, and it’s a good rule of thumb to only use about 30% of the credit available to you.

Business charge cards usually do not feature spending limits, which means the portion of your credit score determined by credit utilization will be unaffected. This can be good or bad, depending on your unique credit situation. Because there is no limit, it won’t negatively impact you if you’re already using more than 30% of your available credit. But, because there is no limit, it can’t help you if you’re hoping to boost your credit score with good credit utilization.

It’s important to note that 35% of your credit score is determined by your payment history, including late payments, minimum payments, and general credit history. If you fail to make the minimum payment (which, on a charge card, is the full balance) you will incur late fees and harsh penalties from your charge card issuer.

Charge cards vs. Credit cards

So what’s the difference? Should I get a charge card or a credit card? Let’s break it down.

Charge card:

  • Pay the monthly balance in full
  • Heavy penalties for late fees
  • No interest on regular charges
  • No limit or high limits
  • Require higher credit scores
  • Great rewards & perks

Credit card:

  • Ability to carry an outstanding balance
  • Lighter penalties for late fees
  • APR applies to purchases
  • Limited spending or controlled limits
  • Available for low credit (but with higher APR and lower limits)
  • Some cards provide great rewards & perks

Just like credit cards, charge cards come in all different shapes and sizes. Some types of business charge cards include rewards, travel points, cash back, or other free perks.

Credit cards can be an excellent option if you need more long term cash flow, because you’ll have the option of just paying the minimum if you’re running a little tight one month. Charge cards are better for short term capital, large purchases, or for employee usage when you know you can pay off expenses.

Benefits of business charge cards

Business charge cards are less common than credit cards and offer a different range of services and benefits. However, charge cards can be the perfect solution for your small business if you’re interested in the following benefits.

No limits

While some charge cards will have limits, most charge cards allow unlimited spend (so long as you pay it off before the closing date). This is especially helpful for businesses who want or need to make a lot of purchases within a short period of time, or want the flexibility to spend as they need without worrying about going over a limit.

Large purchases

Many businesses need to make large purchases that are over the traditional limits provided by business credit cards. Charge cards will allow you to make these very large purchases, delay payment for a short amount of time, and earn rewards for those purchases that you wouldn’t get if you paid in cash.

Incredible rewards

Most charge cards have hefty annual fees but that comes with the increased benefit of better rewards. Higher levels of cash back, rewards points, and access to insider perks are all attractive features of charge cards.

Best charge cards for small business

The best charge card or business credit card for your small business will largely depend on the way your business manages its spend. You’ll want to determine your credit score, outline the way you plan to use a business charge card, and weigh multiple options before choosing the right card for you. We’ll highlight a few of the best business charge cards here for you to consider.

Read our comprehensive guide to choosing the right business credit card for your company.

The Plum Charge Card by American Express

Annual fee: $250

Rewards: 1.5% cash back on spending that is paid off 10 days before closing

Credit: Good/Excellent (690-850)

If you’re looking for a business charge card which will allow you to spend more freely and improve your cash flow, the Plum card has an extended repayment period of 60 days. The Plum card has lackluster rewards, but leans heavily on its design to help small businesses make necessary purchases with a longer payback period.

BILL Divvy Corporate Card and free software

Annual fee: None

Rewards: Flexible choice up to 7x

Credit: No minimum requirement

BILL Spend & Expense breaks the mold by providing a business charge card with no fees and seamless expense software included. Choose your payment schedule and rewards, and get corporate cards (and virtual cards) for every employee. The BILL Spend & Expense web and mobile app allows for automated expense reports and enforceable budgets so you get capital with the control you need.

American Express Business Gold

Annual fee: $295

Rewards 4x + flexible choice

Credit: Good/Excellent (690-850)

Many businesses want an American Express card option that isn’t as travel-focused. The American Express Business Gold is a better choice for a more affordable alternative to the Platinum card, and gives you more options for rewards that cater to your particular needs.

Alternatives to business charge cards

Charge cards aren’t always the right choice for your business, especially if you need the option to carry a balance month-to-month for more flexible and long term cash flow. Not to mention your credit could disqualify you from most business charge cards. The good news is that there are plenty of other options for business spending beyond charge cards.

Business credit cards

There are nearly unlimited options when it comes to business credit cards. You can find business credit cards that cater to travel, supply purchasing, client retention spending, and more. Follow these steps to determine which business credit card could work for you, then follow the steps to apply for the card of your choice.

Secured and prepaid credit cards

If you have poor or nonexistent credit, a secured card might be a better option for your growing business. Secured credit cards require a deposit to “secure” the card, and then offer more friendly APR terms. Prepaid cards can be loaded like a debit card, but still provide rewards and flexibility.

Business loans

For larger amounts of capital or startup spurts, a business loan may be a better fit for your funding needs. The Small Business Administration offers competitive and reliable loans for American small businesses. There are also options for emergency loans and alternative funding on a time-sensitive or need-based circumstance.

Considering a business charge card?

Business charge cards can be invaluable tools for entrepreneurs and small business owners looking to manage their expenses, streamline financial operations, and access valuable perks and rewards.

By understanding their unique features, benefits, and potential drawbacks, you can make an informed decision about whether a business charge card is the right financial instrument for your company.

Remember to carefully evaluate your business's needs, financial habits, and spending patterns to select the card that aligns best with your goals. Learn more about BILL Spend & Expense.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.