Credit cards are incredible instruments of financial convenience and also prove useful to sail through short terms of financial distress. 

What is a Business Credit Card?  

A credit card created for the specific purpose of business is called a business credit card. A business credit card comes in handy for all types of business transactions like booking travel tickets, hotel bookings, crediting employee expenses and allowances, foreign currency transactions, etc. 

These cards are often specifically designed for small and medium business or even for large multi nationals. But the use of business cards may extend beyond this and these can be used by anyone who looks to have a separate business account.  

What are the Benefits of a Business Credit Card?  

Security of Transactions: A business credit card offers security of transactions for the business. A company may issue credit cards to its employees for incurring official expenses. Using a card reduces the risks involved in cash transactions.  

Act as Expense Monitor: A business which carries out its transactions with business credit cards gets all expenses incurred on one or more cards in the form of a statement. It makes it easier for the accounting/ finance department to monitor expenses and keep tabs, if required. 

Earn Rewards/ Discounts: The number of transactions incurred on a business card is more than that on personal cards, especially where the employees also have been given cards for making expenses on behalf of the business.  

In these cases, the company can enter into tie-ups with other companies where there are a lot of transactions to earn discounts/ rewards. 

For Ex: A company where employees travel between different areas of a city can have tie-ups or discounts of fuel purchase at particular outlets or use a fuel co-branded credit card.  

Additional Reading: All You Need to Know About Business Credit Card Rewards  

Multipurpose Usage: As with any other cards, these cards can be used for many other purposes, even if the card is a co-branded card availed specifically for travel or fuel.  

Higher Credit Limits: A business credit card is also ideal for higher spends. For example: if a businessman needs to make a down-payment for a machine purchase, then they must consider doing with a business credit card as it higher credit limit.   

The State Bank of India has its share of corporate cards which has features like spend category control which can be used by the employers to limit the spends of their employees. It also comes with spend analyser which could be a very useful personal tool and is also centrally linked to track expenditure at different levels.   

Eligibility Criteria for Business Credit Cards  

The primary requirements for anyone to apply for a business credit card in India are: 

  • Must have a running business in India 

  • They are available to small businesses, sole and partnership concerns, private or public limited companies or to government run companies.  

  • The business should have a certain degree of financial stability. Profit and loss statements, balance sheets, etc. play an important role.  

When business cards are issued to employees of the company, banks may call in for the following documents too: 

  • Identity proof  

  • Age Proof   

Banks could also ask for memorandums in the case of complexities that are present in the organisation structure or ownership pattern.  

Evaluating Creditworthiness for Business Credit Cards 

As credit cards are unsecured lending for banks, they are particular about creditworthiness be it an individual or a business before issuing a card.  

However, when it comes to a business credit card, the creditworthiness is evaluated based on the business credit score and the financial statements of the business. Business credit score is issued by the credit bureaus like the Equifax, Experian, CIBILTM, or CRIF High Mark. Agencies like CRISIL and CARE also rate various debt instruments issued by businesses which is decided by their repayment ability. SME Ratings are also given by these credit rating agencies.  

But very often, a good personal credit score is also an essential element of the credit evaluation process for issuing business credit card. This is because many times, small business does not have enough financial data based on which the lenders can take a decision. Also, the owner/ founder is the only person responsible for smooth running of business and its financial decisions.  

Additional Reading: Credit Card Financing to Start a Small Business

The same holds good even for partnership firms.  

Business credit cards give entrepreneurs, small businesses and people the required purchasing power to pursue their dreams, solve a customer need or to expand into other areas. Always make an assessment of your current credit health before applying for one.   

Good credit health is essential to companies as well. Keeping this in mind, following are a few steps to maintain a good credit health:   

  • Make regular payments  

  • Dispute errors on your credit report  

  • Don’t borrow until you really need it  

  • Frequently check your credit report  

If you are doing all this, then breathe easy and take the next step to apply for a good business credit card, which will serve you well. If you are new to this whole business credit card, you might want get yourself credit profiled first.