The Difference Between a Small Business Credit Card and a Corporate Card

It doesn’t matter what shape or size your business is, having some form of credit card to fall back on makes sound business sense. First and foremost, a credit card for major transactions offers much-needed protection if the goods or services you pay for don’t quite cut the mustard. Credit cards are also invaluable for covering business expenses, helping to differentiate business spending from income, which is so important for the purposes of tax reporting and clean accounting.

However, there are two types of credit cards up for grabs by small and medium-sized enterprises (SMEs). Both small business credit cards and corporate credit cards have their purposes. It’s just a matter of understanding the differences and making a choice as to the most suitable option for your day-to-day needs.

What is a small business credit card?

A small business credit card gives business owners and authorized senior employees the ability to pay for costs incurred by a business. This could be travel or accommodation expenses or utility bills or office supplies. In many cases, a small business credit card operates in the same way as a personal credit card. Businesses can accrue points and cash back rewards when making eligible transactions.

As a business’ outgoings typically dwarf those of an individual consumer, small business credit card lenders are often more liberal with their credit limits to SMEs. Small business credit cards are also handy for fledgling start-ups when building a business credit rating. With a small business credit card, the business owner is liable for all credit repayments, even if an employee makes a transaction using the card.

The pros and cons of small business credit cards

Let’s check out the benefits and drawbacks of a business owner taking out a small business credit card:

Pros

• Rewards and cashback
  Business owners can accrue rewards and cashback on their spending, including that of their employees. It’s even possible to pool personal and business card rewards if you have a personal credit card with the same provider
• Many online options to compare
  The small business credit card sector is incredibly competitive, making it easy to compare all available options online
• Easier to obtain – particularly for start-ups with little credit history
  Most small business credit cards can be obtained without an extensive credit history. This makes them a credible option for start-up businesses seeking a financial safety net.

Cons

• The employer has sole liability for credit debts
  With a small business credit card, the owner must provide a personal guarantee, making them solely responsible for all company debt accrued
• Not as easy to track payments
  Most small business credit card providers don’t offer an online portal to log in and track one-off payments and regular outgoings to monitor periodic overheads.

What is a corporate card?

Corporate cards are more commonly reserved for businesses that turn over large annual revenues. We’re talking seven figures at least. Corporate cards can be found in debit and credit forms. The debit-style corporate cards require a business owner or employee to pre-load the card into a “wallet” to make any payments online or offline. Meanwhile, the credit-style corporate cards give businesses access to hundreds of thousands of dollars in credit lines each month, with attractive repayment terms too.

Corporate cards look and act like small business credit cards. They are provided by the same world-leading payment providers such as Mastercard and Visa, ensuring worldwide payment coverage in person and online. Overall, corporate cards are better suited to established businesses with strong existing credit ratings.

It’s also worth noting that it’s possible to assign corporate cards to as many employees as you like. Essentially, it doesn’t matter where employees are within the hierarchy, whether it’s the apprentice or chief executive, can make business transactions. This is a great way to empower employees. Simultaneously, for the benefit of the employers, business owners can access real-time data on payments for monitoring overheads.

The pros and cons of corporate cards

To contrast the advantages and disadvantages of small business credit cards, let’s look at the pros and cons of using a corporate card instead:

Pros

• Competitive repayment terms
  Some corporate card providers will give longer than others to repay credit. It’s not uncommon to find a corporate card that gives attractive payment terms of up to 60 days
• Substantial spending limits
  Most credit-based corporate cards are prepared to lend substantial sums to established firms. Some businesses will be able to obtain credit lines worth upwards of £1m each month
• Debit options available with no risk assessment
  There are corporate cards with direct debit payment functionality, allowing firms to use them as prepaid cards. All of this means that firms do not need to undertake pre-application risk assessments
• Real-time overview of expenses
  Access to online portals gives business owners a 24/7 picture of what’s being spent and where. All payments can also be easily assigned to the correct cost center in this manner.

Cons

• Employees can be subject to credit checks
  As corporate cards make it possible for authorized employees to be liable for payments, these staff members need to be happy to be subjected to credit checks on behalf of the business
• Credit options often reserved for firms with robust financials
  Credit lines with corporate cards are typically available to companies with established credit ratings and strong revenue bases.

How to choose between a small business credit card and a corporate card

To decide between a small business credit card and a corporate card, you need to ask yourself a few questions as a business owner.

If you are keen for authorized employees to be jointly liable for expenses made using company cards, a corporate card is probably the best way to go. If you simply want to give senior staff the ability to cover business costs and take all the liability yourself, a small business card account will suffice.

Although many would say that small business credit cards offer better perks and rewards than corporate cards, there are corporate card providers out there that now give cashback and other loyalty benefits. This makes the rewards element more of a moot point when making your final decision. The reality is that corporate cards offer greater flexibility, but small business credit cards are still a quick and straightforward option for business owners willing to carry all the financial risk.