Deciding whether to use a business debit vs. credit card can be a tough choice for a business owner. While both cards can help you better manage your business finances, they each have their own pros and cons.
Here’s what you need to know when deciding between credit vs. debit in banking so you can make the most of your money.
Business debit vs. credit card
Both business debit and credit cards can help you manage your business purchases for more efficient administration. However, credit vs. debit work differently in banking, so you need to know the factors that differentiate them so you can make the best choice for your business.
Business debit card
Your business debit card is connected to your business bank account. Each time you make a purchase, the money comes out of your business bank account.
Depending on your situation, it can make sense to use a business debit card, since you can connect your expenses directly to the cash you have available for business purchases.
For the same reason, because the card is connected directly to your bank account, it’s important to protect your personal information to minimize the risk of fraud. Fortunately, SouthEast Bank offers SouthEast Verifi, a 24/7 fraud monitoring service, to notify you instantly if suspicious charges appear on your account. How’s that for a business debit card perk?
Additionally, you don’t have to worry about your business credit score when using a debit card. You don’t need to pass a credit check or offer a personal guarantee that could impact your personal credit.
On the downside, though, business debit cards with rewards can be tricky to find. If you’re looking for cashback or a similar return on your spending, a business credit card may be a better fit. That said, business debit cards have many perks – as we’ll discuss in greater detail – so having both a business debit and credit card may be worthwhile.
Business credit card
Rather than being connected to your business bank account, a business credit card acts as a line of credit for your operations. You spend money, borrowing from the credit card issuer, and pay it back later.
You’re more likely to find business credit cards with rewards, which can be advantageous. You can use certain rewards for cash back, reducing the amount of capital you spend on operations, or to cover travel and other expenses, reducing your upfront costs. Although it’s possible to find business debit cards with rewards, you’re more likely to earn rewards with a credit card.
Even though a credit card can be more convenient in some cases, it also has some drawbacks. Many business credit cards come with annual fees, which add to your costs. Additionally, if you carry a balance, you’ll pay interest. All of this adds up over time and can make it harder for you to turn a profit in your business.
It’s easier to deal with fraud when you use credit vs. debit in banking, though. Because the money hasn’t come out of your account, you still have it in your business checking to cover costs like payroll and other items. However, business credit protections are less stringent than personal credit protections, so don’t expect to see the same level of protection with your business card as you do with your personal card.
Pros and cons of a business debit vs. credit card
As we’ve discussed, both business debit cards and credit cards have pros and cons, but ultimately, can be a useful tool for entrepreneurs. Here are a few things to consider if you’re thinking about using these spending methods:
Business Debit Card Pros
- Money comes out of your business bank account, so you’re less likely to overspend.
- You don’t need a credit check or personal guarantee to get a business debit card.
- No interest charges or annual fees to cut into your profits.
Business Debit Card Cons
- You have a bigger fraud liability risk with a business debit card.
- While there are some business debit cards with rewards, many debit cards don’t offer rewards programs.
Business Credit Card Pros
- Money doesn’t come out of your bank account, potentially helping with cash flow and protecting you in instances of fraud.
- Greater potential to earn rewards.
Business Credit Card Cons
- Requires a credit check and can be harder to get, and you might need to provide a personal guarantee.
- Many business credit cards charge annual fees.
- You’re more likely to overspend with a business credit card, and paying the interest on a carried balance can be expensive.
Should you get a business debit vs. credit card?
Whether you choose credit vs. debit in banking depends on your individual situation and your business goals.
If you’re concerned about overspending and you’re not sure you qualify for a business credit card, you might be better off with debit. You can use your debit card for purchases, and you’re less likely to overspend because you’ll only be able to access what’s in your business checking account.
Additionally, you won’t have to worry about providing a personal guarantee if your business hasn’t established enough credit to qualify for a card. With a personal guarantee, problems with your business could begin to impact your personal credit, causing problems down the road.
On the other hand, if you’re concerned about getting rewards, or if you want a line of credit, a business credit card might make more sense. Carefully consider your own needs to figure out what’s likely to work for you. If you do get a business credit card, consider making sure you can pay off the balance each month to avoid interest charges. Look for a card without an annual fee and other extra costs.
Finally, though, realize that you might not have to choose. In some cases, it can make sense for new small business owners to start out with a business debit card. Later, as your business grows, you can add a business credit card. You can use both to help you run your business.
Bottom line
Compare business debit vs. credit card offerings at different banks. The best banks for small businesses have a variety of products and services that can help you make the most of every dollar in your business. Consider the pros and cons of credit vs. debit in banking, and make a choice based on your individual situation.
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Information contained in this blog is for educational and informational purposes only. Nothing contained in this blog should be construed as legal or tax advice. An attorney or tax advisor should be consulted for advice on specific issues.
